Unopposed lease renewals under the Landlord and Tenant Act 1954 (the “1954 Act”) don’t often make it to trial. It has therefore been an interesting year for property litigators, with the recent publication of not one, but two notable reported cases on the insertion of landlord break rights in renewal leases.
We wrote previously about the decision in B&M Retail v HSBC Bank Pension Trust (UK) Ltd, in which HSBC had sought the inclusion of a redevelopment break. While each case turns on its facts, the court’s decision that the landlord could exercise its break option immediately was welcome news for landlords. The decision in the recent case of BMW (UK) Ltd v K Group Holdings Ltd shows however that it’s not always quite so easy for a landlord to persuade a Court that a renewal lease should include a break option. This case reminds us that there are often numerous hoops for a landlord to jump through in order to secure the future option to determine a renewal lease.
Facts
BMW had 4 separate leases of premises on Park Lane, London. While it had agreed in principle with its landlord that it could have renewal leases of those premises, the parties had not managed to agree the terms on which the leases would be granted.
The key terms in dispute were the landlord’s break option in one of the leases and the rent payable for each unit. The landlord wanted to determine one of BMW’s leases on 6 months’ notice at any time during the period from the 2nd anniversary of the term to and including the 5th anniversary of the term. If it exercised that break right, in order to terminate BMW’s tenancy the landlord would also need to successfully rely on one of the grounds of opposition at section 30(1) of the 1954 Act. It said that it would rely on ground (g), namely that on termination of BMW’s tenancy, the landlord intended to occupy the holding for a purpose of a business which it would carry out.
Of course, a determination of the rent would have to follow a decision on the break clause, given the impact that that would have on the rent.
Decision
In its judgment, the Court reminded us that when deciding whether or not to grant a landlord a break right, it needs to try to balance the needs of a tenant seeking security of tenure against unduly preventing a landlord from recovering possession in the event that it can prove one of the statutory grounds for possession.
The Court held that while the landlord may not immediately be in a position to prove one of the statutory grounds of possession, it still needed to show the Court on the balance of probabilities that its intentions in relation to the premises were “genuine and workable” such that they amounted to a “possibility of a bona fide decision to operate a break clause if one be granted”. The landlord needed to show that re-occupation of BMW’s premises was “on the cards” or “a real possibility”.
In this case, the Court found that the landlord’s plans amounted to “speculative musings”. It was no more than a mere thought, and had not matured into a genuine and workable decision. The exercise of a break option would also be extremely harmful to BMW. On balance, therefore, the landlord could not show that it had made a decision which satisfied the evidential test to include the break option in the renewal lease.
Comment
Even before the grant of a renewal lease when the potential exercise of a break option is some time away a landlord is expected to give some serious thought to how it will terminate the tenancy when the time comes.
As 1954 Act protected leases approach expiry landlords should therefore carefully consider whether or not they wish to try to terminate the tenancy in the near future. If they do, then careful planning will be needed if they are to try to persuade their tenant (and potentially a Court) that the lease should be terminated either now or during the term of the renewal lease.
