Case Update: Redevelopment Break Clauses in Renewal Leases

The recent case of B&M Retail Ltd v HSBC Bank Pension Trust (UK) Ltd considered the question of whether the inclusion of a redevelopment break clause in a renewal lease by HSBC (the Landlord) was valid and exercisable.

The Background

Under the Landlord and Tenant Act 1954 (the Act), a business tenant may apply to the court for a new tenancy by serving a s.26 notice on the landlord. This notice may be opposed by the landlord on one of the statutory grounds set out in the Act.

In this case, the Landlord had not served their formal opposition to a s.26 notice from B&M (the Tenant) within the required timeframe, due to a ‘post room error’ during COVID.

If the Landlord’s counter-notice had been produced in time, they would have opposed the Tenant’s request on the ground that they were seeking to redevelop the site, though they had not yet obtained planning approval for these plans.

Since the counter-notice was not served in time, the Tenant was entitled to a new lease of the premises.

Under s.35 of the Act, any terms of the new tenancy granted may be determined by the court, having ‘regard to the terms of the current tenancy and to all relevant circumstances’.

The Issue

The Landlord argued that a redevelopment break clause should be included in the new lease, which would allow them to break the lease in order to redevelop the site in accordance with their existing redevelopment plans.

The Tenant disputed the inclusion of such a clause, on the basis of the financial implications for their business that would result from their lease being terminated.

The key issue for the Court to consider was whether or not there was a realistic possibility that the site would actually be redeveloped during the period of the proposed new tenancy. The Court heard from planning experts that planning permission was likely to be granted on the basis of the Landlord’s proposals.

The Decision

Ultimately, the Court determined that the inclusion of the redevelopment break clause was valid and that the Act ‘should clearly not be used as an instrument to defeat development’. This meant that the Landlord was able to exercise the break immediately and pursue their plans for redevelopment of the site, providing the Tenant with just six months’ notice.

The Outcome

This case highlights the importance for landlords of planning ahead when it comes to lease renewals that fall within the Act, to try and reduce the risk of similar disputes arising.

However, it also represents a real cause for concern for tenants who believe that they are protected under the Act and are faced with a landlord that is looking to redevelop.

If you require further information in relation to this topic, please get in touch with our commercial property team by calling 0116 289 7000 or emailing us at info@bhwsolicitors.com.