Lease renewal: judge applied correct legal test in ordering redevelopment break clause

The Landlord and Tenant Act 1954 is not intended to prevent a landlord’s redevelopment ambitions. The court must undertake a balancing exercise between competing interests. The Chancery Division has dismissed the tenant’s appeal in B&M Retail Ltd v HSBC Bank Pension Trust (UK) Ltd [2023] EWHC 2495 (Ch). The case concerned premises on a retail park in Willesden, north-west London, owned by HSBC, from which B&M traded successfully as a retail store with attached garden centre. The contractual term of the lease of the premises expired in December 2020. Owing to an oversight during the coronavirus pandemic, HSBC failed to respond to B&M’s section 26 request opposing the grant of a new tenancy and so was bound to grant a new tenancy. In light of HSBC’s proposals for redevelopment of the site, in conjunction with Aldi, in March 2023 the judge ordered a new lease of the property for five years with a rolling redevelopment break clause, exercisable immediately, on six months’ notice. B&M appealed, arguing that the break clause defeated the purpose of the 1954 Act, namely to provide a tenant with a reasonable degree of security of tenure. While security of tenure should not be at the expense of development, delaying development was not the same as preventing it, and a fair balance has to be struck between those competing interests. The court decided that the judge had applied the correct legal test. When considering the break clause, he had undertaken the required balancing exercise by giving weight to the hardship to the tenant of having to vacate the premises and noting that it had taken few steps to find alternative premises or prepare for the move. He gave significant weight to the fact that the landlord had well-developed development plans – an agreement for lease with Aldi, which was to undertake specified works, and its application for planning permission – unlike some cases where the possibility of development was little more than a gleam in the landlord’s eye and where the landlord was seeking to improve the value of its reversion. The judge had concluded that if HSBC was unable to obtain vacant possession by October 2024 then it may not be able to enforce the agreement for lease, which would frustrate its plans, and that this trumped B&M’s position, meaning that the scales came down decisively in favour of including a break clause. While some parts of the judgment were not best expressed, the judge had not erred in principle or gone beyond the wide range of decisions which rational people could reach. Louise Clark is a property law consultant and mediator