This week's bulletin focuses on the Landlord and Tenant Act 1954, which, as our first article states, is again under scrutiny. Whether or not it is still fit for the 21st century is a topic for debate, and perhaps our second article, where we discuss the case of B&M Retail v HSBC Bank Pension Trust might be a timely case in point. This was a case where the rules about the Court imposing a break clause in a renewal lease came into play, where a Landlord had agreed with another retailer to develop a tired retail unit, but the existing retailer tenant had statutory rights.
The Law Commission has announced a review of the Landlord and Tenant Act 1954
The Landlord and Tenant Act 1954 (the Act) was passed to give commercial tenants better security of tenure. The Law Commission has carried out episodic reviews, but there has been very little substantive change since the Act's inception and the last review was nearly 20 years ago.
The Law Commission has recently announced a consultation, commissioned by the Department for Levelling Up, Housing and Communities, to look at the security of tenure provisions in Part 2 of the Act. The Law Commission stated that those relying on the Act find it 'inflexible, bureaucratic and out of date' and many choose to exclude the security of tenure provisions. It is therefore felt by many that the Act needs modernising to better reflect today's commercial markets and to allow for more flexible arrangements between commercial landlords and tenants. The review will analyse the current Act 'with a view to developing a modern legal framework that is widely used rather than opted out of…'. It is also intended to consider the Government's wider policies relating to regeneration of town centres, levelling up and net zero.
The Property Litigation Association (PLA) carried out a survey in the wake of this announcement and found that the consensus is for a more streamlined process with improvements to speed and clarity, rather than a wholesale change to the system. The PLA is set to report its findings to the Law Commission.
The Law Commission aims to publish a consultation paper by December 2023.
B&M Retail Limited v HSBC Bank Pension Trust (UK) Limited: Courts will not let the 1954 Act stand in the way of redevelopment
In B&M Retail Limited v HSBC Bank Pension Trust (UK) Limited, a section 26 Notice had been served by the tenant under the 1954 Act. The landlord was planning to redevelop the building, but due to a post room error during the Covid pandemic, the section 26 Notice was overlooked and so the time passed for the landlord to serve a valid counternotice and so the landlord lost the opportunity to oppose the lease renewal on redevelopment grounds.
At the hearing of the subsequent application for a new lease, the judge imposed a redevelopment break clause which was operable from day one of the new lease.
The landlord wished to part-demolish the Premises to split it into two retail units and lease both to Aldi, who had already entered into an agreement for lease with the landlord conditional upon the landlord obtaining vacant possession of the Premises.
The landlord argued that development should not be held up by the tenant's right to security of tenure and, in particular, that financial harm to the tenant would not be enough to override the landlord's right to redevelop its premises.
The tenant argued that a landlord's intention to redevelop should not trump the tenant's need for security of tenure and that a court should conduct a balancing act. Security of tenure was to be "a paramount consideration or at least a matter of significance that should be taken into account."
County Court's decision
The judge confirmed that the agreement for lease with Aldi, which contractually obliged the landlord to undertake the proposed works, was sufficient to show an intention to redevelop. The judge was also satisfied on the evidence that the proposed works were "substantial" and so amounted to redevelopment for the purposes of the Act.
In terms of planning, the Premises themselves were for a large, but old, warehouse being used as a retail unit on the outskirts of London and as such is in a desirable area. The area the Premises is located in was also subject to multiple local planning policies. The planning experts confirmed that there were no planning law restrictions preventing the Defendant from sub-dividing the Premises into two retail units, and the judge came to the conclusion that it was a "real possibility" that the landlord will obtain planning permission for the proposed redevelopment.
The Court's guiding principle was that the 1954 Act "“should clearly not be used as an instrument to defeat development” and the judge stated at paragraph 78 "If the terms of the new lease would prevent redevelopment, by acceding to the tenant's proposed terms that have that effect, then this should be refused".
The Court also said that B&M's financial size, being a FTSE 100 company, distinguished this case from other similar cases and therefore, the significant financial harm B&M would suffer as a result of the break clause, including the lack of availability of alternative sites in the area, was not enough to override the Landlord's right to develop.
The Court's ruling is a clear reminder of the difficulties tenants have in opposing landlord's redevelopment plans, even if these incur significant costs to the tenant's business. Tenants should take great care in dealing with landlords who intend to redevelop and should have sufficient contingency planning in place.
Whilst landlords will take comfort in this decision, they should plan lease ends better than this particular landlord did – getting an immediately operable break clause is a distant second best option to getting possession, which had they been more alert at the start, they could have obtained; and the judge was at pains to point out there will be a delay caused by the requirement to give notice and, depending on the lease, there may be a number of years to run before a landlord is able to instigate the break.
Insights from around the firm
A runner surprised his girlfriend with a proposal at the Manchester marathon's finish line on Saturday 15th April. The couple have been together for 9 years, since their university days. Niall West had insisted they ran the whole marathon together as he obviously knew he had a nice surprise waiting for his girlfriend at the finish line!
Ghana has become the first country to approve a pioneering malaria vaccine. The search for a malaria vaccine has been going on for decades.
The R21/Matrix-M vaccine was developed at Oxford University and has been cleared for use in children aged 5-36 months, who are in the highest risk category of death from malaria.