The recent case of B&M Retail Limited v HSBC Bank Pension Trust (UK) Limited highlights two important issues.
Firstly, that entities must have secure procedures in place to avoid notices being missed.
Secondly, that the Court will not interpret the Landlord and Tenant Act 1954 in a way to hinder landlord redevelopment.
- HSBC was a landlord, and B&M was a tenant of a large unit in London.
- B&M's lease was due to end, and HSBC entered into an agreement for a lease with Aldi. Under that agreement, Aldi was to undertake extensive redevelopment works to the property. The lease agreement was conditional on obtaining vacant possession and planning conditions being satisfied.
- However, the current tenant (B&M) served a s.26 request for a new tenancy. Due to staff working from home during the pandemic, HSBC missed the s.26 request and failed to oppose the renewal within the two-month statutory period.
- The parties agreed that B&M was entitled to a new lease, but the Court was asked to determine two points; should a landlord redevelopment break right be incorporated into the lease? and what should the length of the term be?
- Both HSBC and B&M had a lot to lose. HSBC advised the Court that the deal to Aldi was worth several million pounds and that Aldi's works were substantial. B&M gave evidence that they would be unable to relocate to a store of similar size in the same area – and as such, it would lose significant business.
- HSBC proposed an 18-month term, with a landlord's redevelopment break right exercisable immediately on six months' notice. B&M requested a 10-year term, with a break right only to be exercisable after five years.
- Regarding the redevelopment break right, the Court found that the Landlord and Tenant Act 1954 could not be used to hinder redevelopment. A landlord's intention to redevelop (if sufficiently evidenced) would override the economic impact on B&M.
- The Court found that there was a real possibility that the planning permission for the redevelopment would be successful and that it was, therefore, appropriate for the redevelopment break right (exercisable immediately) on six months' written notice to be incorporated.
- On the issue of the length of the term, there was less significance given that the break right was exercisable immediately. However, if HSBC did not obtain planning permission, the term would be relevant to B&M.
- The Court examined what was reasonable for both parties and carried out a balancing exercise. It found that a 5-year term would give the necessary security to B&M (and allow them time to plan their relocation) whilst maintaining an income for HSBC.
- Landlords and tenants must ensure that appropriate procedures are in place for the processing of (and response to) notices sent by post. Clearly, a landlord would rather oppose the renewal in the first instance rather than have to advocate for a redevelopment break right in an unopposed lease renewal with all the delays involved.
- Landlords can be reassured that if the necessary evidence of redevelopment is provided (in the form of planning permission or an application with real chances of success), the Courts are willing to order the inclusion of a redevelopment break right to facilitate that process.
- Tenants should be aware that whilst they may have security of tenure under the Landlord and Tenant Act 1954, if a landlord can evidence redevelopment, there is a real risk of financial loss and disturbance, and they should make the necessary preparations to mitigate this.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.