The recent case of B&M Retail v HSBC Bank Pension Trust (HH Judge Saunders) has demonstrated the court’s reluctance to hinder a landlord’s redevelopment plans.
Background
In this case, HSBC Bank Pension Trust Ltd (Landlord) owned premises which it let to B&M Retail Ltd (Tenant).
The lease expired in December 2020 with the Landlord having entered into an Agreement for Lease (AFL) with Aldi Stores Limited (Aldi). The AFL obliged Aldi to carry out redevelopment works at its own costs for the Landlord.
The Landlord sought to terminate the lease on the redevelopment ground under section 30(1)(f) of the Landlord and Tenant Act 1954 (the Act) by serving a section 25 notice in May 2021. What the Landlord had failed to realise, was that five months prior, in January 2021, the Tenant had already served a request for a new tenancy pursuant to section 26 of the Act. The Landlord had failed to serve a counter notice opposing renewal, citing the reason for this as being post room errors that had been caused by the coronavirus pandemic.
This meant that the Landlord was unable to oppose the grant of a new tenancy. The new terms were consequently negotiated and largely agreed between the parties.
Redevelopment break
One of the key issues in dispute was whether the tenancy could contain a rolling break clause for redevelopment and if so when it could be exercised.
When considering whether the Landlord should be granted a break clause, National Car Parks v The Paternoster Consortium (1990) established that, if there is a “real possibility that the redevelopment can take place, it follows that a break clause ought to be included”. The court would only upset a landlord’s redevelopment plans if there was a “major factor” pointing the other way and that while there is a balancing act to undertake, it is “trumped” by a landlord’s wish to redevelop.
In this case, the likelihood of redevelopment turned on whether again there was a “real possibility” of the Landlord obtaining planning permission to allow the works under the AFL to go ahead. The decision came down to the expert evidence provided by both sides.
The Tenant presented evidence that planning permission would run contrary to a number of established local policies which meant that permission was unlikely to be granted. However, the court ultimately preferred the expert evidence of the Landlord, who, while acknowledging the planning risks suggested that the planning application may be considered as a reconfiguration of the existing floorspace, in which case material considerations would outweigh the conflict with the local plans. The Landlord also argued that it would suffer prejudice if it was unable to carry out the works because the new lease did not contain a redevelopment break.
As to when the break clause should be exercisable, the Tenant argued that it should only be from the fifth anniversary of the new lease due to the practical impact for the Tenant of having to relocate should the break be exercised. The court balanced this against the fact that under the AFL the Landlord had until February 2024 to obtain vacant possession, which in practice left it very little time considering it would first have to complete the lease, serve the break and a new section 25 notice and probably apply for a termination order. It was also live to the “very real risk” of Aldi taking its business elsewhere if vacant possession was not achieved within those timescales. The Aldi lease was of far greater benefit to the Landlord than the renewal of the existing lease, which swung the balance in the Landlord’s favour.
For these reasons the court acceded to the Landlord’s request that the redevelopment break would be exercisable immediately on giving 6 months’ notice.
Conclusion
This is likely a welcomed decision by landlords and shows that the courts continue to demonstrate reluctance in disrupting redevelopment plans.
While this is not something that the court was concerned about, it described the Landlord missing the section 26 request and ability to oppose renewal as a “fortunate break” for the Tenant. This is a stark reminder of the importance to have in place suitable checks to ensure all notices are recorded and promptly make their way to the decision-maker to be acted upon.
Unsurprisingly, permission to appeal has been granted and a further hearing will take place in October 2023.
