Background
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 arguments
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 Aldi'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.
Commentary
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.
