The recent unopposed lease renewal case of B&M Retail Ltd v HSBC Bank Pension Trust (UK) Ltd sets out some practical implications for commercial landlords. The case involved a landlord that missed the chance to oppose the grant of a new lease but successfully secured the inclusion of a redevelopment break clause in the new lease. It offers a useful reminder that if, at the time of an application for renewal, the landlord’s plans are not developed sufficiently to make out ground (f) of section 30(1) of the Landlord and Tenant Act 1954 (LTA 1954), there is now another option open to the landlord: including a redevelopment break clause in the new lease. Below are some take away messages that landlords of commercial property should bear in mind:
- Landlords which can establish ground (f) of section 30(1) of the LTA 1954 have an absolute right to refuse the grant of a new tenancy. It is important, however, to note that landlords will have to pay compensation in such circumstances.
- If, at the time of a tenant’s request for a new tenancy, the landlord’s plans are not developed sufficiently to make out ground (f), the landlord can seek to include a redevelopment break clause in the new lease.
- In the case of a redevelopment break clause, the test for inclusion is whether there is a ‘real possibility’ of redevelopment. Therefore, the landlord must demonstrate the possibility of obtaining planning permission.
- Expert evidence from planning experts will be relevant to whether there is a ‘real possibility’ of planning permission being granted.
- If there is a ‘real possibility’ of obtaining planning permission, the court may allow the inclusion of a redevelopment break clause.
- The court may also decide when the break clause should be exercisable, and while the landlord should not be prevented from pursuing its redevelopment plans, there might be circumstances in which the court could conclude that it would be reasonable to delay the operation of a break clause.
The facts of the case revealed that B&M served a notice on its landlord, HSBC, seeking a new tenancy of a retail unit in Willesden in early 2021. Due to an error in the post room at HSBC, the notice was not forwarded to the correct person, and HSBC missed the chance to oppose the grant of a new lease. HSBC was therefore bound to accept that a new lease would be granted to B&M but the parties were at odds as to its terms.
HSBC had a desire to redevelop the premises but did not have planning approval in hand. The parties agreed that the test for whether a redevelopment break clause should be included within the new lease was whether there was a ‘real possibility’ that the premises would be redeveloped by the landlord. However, there was a dispute between the parties regarding whether there was a ‘real possibility’ of planning permission being granted. Both parties adduced expert evidence from planning experts. B&M’s expert considered that the application would be unsuccessful because it contravened development policies in force in the area. HSBC’s expert, on the other hand, considered that the proposal did not entail the development of new retail floorspace over and above that already in use at the site, and any objection based on non-compliance with policies would fail.
In his judgment, the His Honour Judge Saunders preferred the evidence of HSBC’s expert, which he considered to be a “sound and practical opinion”. Consequently, he concluded that HSBC had shown that there was a ‘real possibility’ that the planning application would be successful, and it would be appropriate to include a redevelopment break clause within the new lease. The judge also decided when the break clause should be exercisable, noting that a landlord should not be prevented from pursuing its redevelopment plans. The judge therefore determined that HSBC was entitled to operate the redevelopment break immediately upon giving just six months’ notice.
Ultimately, although the landlord was successful in gaining vacant possession of the premises, the case highlights the need for strategic planning under LTA 1954 lease renewals and for this to be clearly communicated to the tenant in order to reduce the possibility that disputes will arise.
This article was co-written by Asha Patel, Trainee Solicitor.