Commercial Property: Appeal of terms of a new lease to be granted to a tenant under Landlord & Tenant Act 1954 (B&M Retail Ltd v HSBC Bank Pension Trust (UK) Ltd – 2023)

Where a business tenant was granted a new lease pursuant to the Landlord & Tenant Act 1954, was the immediately-exercisable break clause proposed by the landlord reasonable?

The background

B&M Retail Ltd v HSBC Bank Pension Trust (UK) Ltd [2023] concerned a commercial retail property occupied by the appellant tenant. The tenant sought a new lease of the property. The landlord agreed to the grant of the new lease, but required that its terms included a rolling redevelopment break clause which could be exercised immediately on 6 months’ notice.

At trial, the judge found that redevelopment of the property by the landlord was a ‘real possibility’ and agreed to the inclusion of the break clause. The tenant appealed on two grounds, although it did not pursue the first ground as to whether HSBC had a realistic possibility of obtaining planning permission.

The tenant pursued its second ground of appeal, which argued that the purpose of security of tenure provisions under the LTA 1954 was to give tenants greater certainty as to their occupation of premises, and that inclusion of the redevelopment break clause contradicted this.

The decision

The High Court’s Chancery Division dismissed the tenant’s appeal, finding that the trial judge had not erred in principle in granting the inclusion of the break clause, and that he had not gone beyond the range of decisions which may be reached by rational persons.

In its decision, the court considered a number of points including:

1. The trial judge had applied the correct legal test.
2. The trial judge had considered how termination of the new tenancy would impact the tenant’s business, finding – and giving due weight to the fact – that including the break clause in the lease would result in disruption and potential damage to the tenant. However, the judge commented that the tenant had not committed itself to finding alternative premises or preparing to vacate the premises. By considering these points, the trial judge demonstrated that he had balanced the interests of both parties; the tenant’s interest in security of tenure of the premises, and the landlord’s interest in redevelopment of a vacant property.
3. The High Court found that the trial judge had considered the landlord’s redevelopment plans, concluding that these were advanced and not simply a suggestion in order to obtain greater value to its reversion. The judge clearly considered this to be a factor carrying weight, which he was entitled to decide.
4. The landlord had entered into an Agreement for Lease with a development partner. If vacant possession could not be secured, the agreement may not have been enforceable which would frustrate the landlord’s plans for redevelopment.
5. The discretion afforded to the trial judge was wide. The High Court referenced cases where immediate break clauses were found to be appropriate, concluding that the principle could not therefore contradict the role of security of tenure and the LTA 1954. The trial judge had not erred in his approach.

The tenant’s appeal against inclusion of the break clause was dismissed.

Advice and action for landlords

This is a helpful decision for landlords wishing to redevelop commercial properties where tenants are seeking new tenancies.

In this case, the landlord could clearly demonstrate a firm intention to redevelop the premises through its plans and the Agreement for Lease it had entered into with a development partner. The tenant had not taken steps itself to prepare to vacate the premises or to relocate, and the trial judge had a wide discretion to grant the inclusion of the break clause. Landlords wishing to follow suit should ensure that plans for redevelopment are sufficiently advanced, with firm intention to undertake works.