Landlord and tenant – Lease renewal – Terms – Appellant requesting new tenancy of commercial premises on termination of lease – Court asked to determine outstanding terms of new lease – Judge ordering rolling redevelopment break clause in lease – Appellant appealing – Whether break clause defeating purpose of Landlord and Tenant Act 1954 to give tenant reasonable degree of security of tenure – Appeal dismissed
The respondent landlord owned premises at 473 High Road, Willesden, north London. The appellant held a lease of the premises from which it traded as a retail store with attached garden centre. The lease expired in December 2020.
In May 2019, the respondent entered into negotiations with Aldi Stores Ltd for the grant of a conditional agreement for a lease under which Aldi would be obliged to carry out defined redevelopment works on behalf of the respondent.
The respondent sought to terminate the lease with the appellant under section 30(1)(f) of the Landlord and Tenant Act 1954, by serving a section 25 notice in May 2021.
However, it failed to appreciate, owing to an error in the post room, that in January 2021 the appellant had served its own request under section 26 of the 1954 Act for a new tenancy and it was now out of time in opposing the grant of a new lease.
Many of the terms of the new lease were agreed but the court was asked to determine its length and whether the tenancy should contain a rolling break clause for redevelopment.
The count court ordered that there should be a new lease of the relevant property for five years with a rolling redevelopment break clause, exercisable immediately, on six months’ notice: [2023] PLSCS 56.
The appellant appealed contending that the redevelopment break clause defeated the purpose of the 1954 Act, which was to give the tenant a reasonable degree of security of tenure.
Held: The appeal was dismissed.
(1) The terms of a new tenancy should not in any way impede the development of the land in due course as and when the intention and the ability were present. It was no part of the policy of the 1954 Act to give security of tenure to a business tenant at the expense of preventing redevelopment. The court had a wide discretion to direct the insertion of such break clauses as were fair and proper in all the circumstances. The process was one of balancing the hardship for the parties of including or excluding the clause. One of the factors to be borne in mind in the balance was that there should be a reasonable degree of security of tenure for the tenants. Where a landlord had a bona fide intention of developing his land, even if that intention was not capable of immediate realisation, the terms of a new tenancy should not impede it: Reohorn v Barry Corporation [1956] 1 WLR 845, Adams v Green (1978) 247 EG 49 and Amika Motors v Colebrook Holdings Ltd [1981] 2 EGLR 62 considered.
(2) The general purpose of the 1954 Act was to protect the business interests of the tenant so far as they were affected by the approaching termination of the current lease. The general purpose and policy of the Act was to provide security of tenure for those tenants who had established themselves in business in leasehold premises so that they could continue to carry on their business there. The court would consider any objections of the tenant and, where there was an insoluble conflict, would decide according to justice and fairness. The Act was not to be used to prevent or unreasonably delay redevelopment: O’May v City of London [1983] 2 AC 726 considered.
If it was likely that the superior landlord for the time being might wish to develop the property, then (since it was not the policy of the 1954 Act to inhibit development) he should not be saddled with a lease which might prevent such development. In that connection a present intention to redevelop immediately was not necessary.
(3) There was no indication in the formulation of the legal test that the landlord’s desire to redevelop necessarily trumped the tenant’s desire for security of tenure. The function of the court was to strike a fair balance between the two competing aspirations. That necessarily presupposed that the landlord might have to wait for some time (though not so long as to prevent redevelopment) before being able to regain possession. Moreover, the new lease should not prevent redevelopment so far as reasonable. What was reasonable in the particular circumstances was a value judgment on which reasonable people might differ but some degree of diversity was an acceptable price to pay for the flexibility enshrined in the statute: J H Edwards & Sons Ltd v Central London Commercial Estates [1984] 2 EGLR 103, Becker v Hill Street Properties [1990] 2 EGLR 78, Piglowska v Piglowski [1999] 1 WLR 1360 and Davy’s of London (Wine Merchants) Ltd v City of London Corporation [2004] EWHC 2224 (Ch); [2004] 3 EGLR 39 considered.
In the present case, reading the judgment as a whole, the judge directed himself in accordance with the correct legal test. The judge had a wide discretion in deciding what was fair and reasonable. He considered that although it might, in some circumstances, be reasonable to delay the operation of the break clause, it would not be appropriate to do so if the delay might operate to frustrate the redevelopment.
(4) There could be no rule that there always had to be a delay before a break clause could be exercised. That would be a fetter which was not found in the statute. The decision in National Car Parks Ltd v The Paternoster Consortium Ltd [1990] 15 EG 53 showed that there were cases where an immediately exercisable break clause might be appropriate and the notion of such a clause was not inconsistent with the underlying policy of the Act. It could not be said that an immediately exercisable break clause was somehow inimical to the grant of a new tenancy under the Act or was inherently wrong or that it showed, of itself, that there had been an error of approach.
The judge did not err in principle, or go beyond the wide range of decisions which rational people could reach, in concluding that the scales came down decisively in favour of the inclusion of the clause.
John de Waal KC and Adam Smith-Roberts (instructed by Jury O’Shea LLP) appeared for the appellant; Guy Fetherstonhaugh KC and Julia Petrenko (instructed by Stephenson Harwood) appeared for the respondent.
Eileen O’Grady, barrister
Click here to read a transcript of B&M Retail Ltd v HSBC Bank Pension Trust (UK) Ltd
