In B&M Retail Ltd v HSBC Bank Pension Trust (UK) Ltd [2023] PLSCS 56, the Central London County Court has considered the tension between a landlord’s wish to redevelop and a tenant’s desire for security of tenure in a tenancy renewal under the Landlord and Tenant Act 1954.
The background
The case concerned premises on a retail park in Willesden, north London, owned by the defendant landlord, from which the claimant tenant traded successfully – and wished to continue to trade – as a retail store with attached garden centre.
The premises were constructed in the 1980s as a large warehouse and the parties generally accepted that they were tired and needed updating. The landlord intended to bring the tenancy to an end on the redevelopment ground in section 30(1)(f) of the 1954 Act but, due to an oversight during the Covid-19 pandemic, failed to respond to the tenant’s section 26 request for a new tenancy. Consequently, the landlord was bound to grant a new tenancy.
The parties were able to agree much of the new lease, including the rent, but could not agree the length of the term and whether the tenancy should contain a rolling redevelopment break clause. The tenant sought a term of 10 years. The landlord proposed an 18-month term and a landlord’s redevelopment breach clause operable on not less than six months’ notice.
The Aldi lease
In February 2021, the landlord had entered an agreement for lease with Aldi whereby it would be granted a 20-year lease conditional on a planning condition being satisfied and vacant possession of the premises being obtained by 3 February 2025.
The landlord’s motivation was purely financial. A lease to Aldi and redevelopment of the site would be worth “millions of pounds” which was in line with its investment strategy as trustee of a pension fund.
Under the agreement for lease, Aldi was required to undertake extensive “landlord’s works” which included demolishing part of the existing building, renewing and replacing the external envelope, extending it to the rear and creating two separate retail units. Due to its desirable location Aldi would, in a worst-case scenario, be prepared to wait until February 2029 to enter into a lease of the store.
The law
The duration of a new lease is governed by section 33 of the 1954 Act, which provides that, in the absence of agreement, it is “such tenancy as may be determined by the court to be reasonable in all the circumstances” up to a maximum of 15 years. The terms of the new tenancy – other than rent and the length of the term – are to be determined by the court under section 35 having regard to the terms of the current tenancy and all the relevant circumstances.
The tenant argued the landlord’s intention to redevelop should not trump its need for security. The court should adopt a balancing exercise, exercised in its favour based on the adverse impact of having to give up the premises.
However, several Court of Appeal authorities support the proposition that the 1954 Act should not be invoked by a tenant to prevent development. In Adams v Green [1978] 2 EGLR 46 it was stated that it was no part of the 1954 Act “to give security of tenure to a business tenant at the expense of preventing development”. In National Car Parks Ltd v The Paternoster Consortium Ltd [1990] 1 EGLR 99, the vice chancellor Sir Nicholas Browne-Wilkinson said that “if there is a real possibility – as opposed to a probability – that the premises will be required for reconstruction during the continuance of the proposed new tenancy, it is right to include… a break clause”.
Consequently, the court will only upset a landlord’s redevelopment ambitions if there is a major factor which points the other way.
The decision
There was no dispute that there was a genuine intention to carry out the works referred to in the agreement for lease, but was there a real prospect of obtaining planning permission to achieve them?
An application for planning permission, submitted in December 2022, had not been determined by the date of hearing. The planning experts disagreed about how the planning authority would treat the application and its likely outcome.
The court preferred the landlord’s expert evidence, that the proposal was for a reconfiguration of the premises and likely to succeed, to the view of the tenant’s expert that it was a comprehensive redevelopment which would be defeated by development plan policies. Consequently, it was appropriate for the new lease to include a landlord’s redevelopment break clause.
The adverse financial impact on the landlord of delaying the redevelopment of the premises and the grant of the 20-year lease to Aldi with its increased rent swung the balancing act in favour of the landlord to allow the break clause to be operable immediately.
The deterioration of the premises militated against a longer term, but 18 months was far too short. It was appropriate to grant a term that gave the claimant some security and an ability to onward plan but afforded the landlord protection in relation to a reducing asset and the need to offset its liabilities by maintaining income from the premises. The court ordered a five-year term with a redevelopment break clause operable immediately on six months’ notice.
Key points
- The 1954 Act is not intended to provide security of tenure for business tenants at the expense of redevelopment
- A landlord’s wish to redevelop will trump a tenant’s desire for security of tenure
- The length of a new tenancy may depend on the landlord’s timetable
Louise Clark is a property law consultant and mediator
