Immediate redevelopment break clauses—are they at odds with the Landlord and Tenant Act 1954?

Following the recent case of B&M Retail v HSBC Bank, associate Harriet Allsop and trainee James Underwood explore the question put before the High Court on appeal on whether immediate redevelopment break clauses are at odds with security of tenure under the Landlord and Tenant Act 1954. 

B&M Retail Limited v HSBC Bank Pension Trust (UK) Limited 

B&M is a tenant of retail premises in Willesden; the landlord is HSBC. Following the expiry of its lease in 2020, B&M’s lease continued by virtue of the Landlord and Tenant Act 1954 (LTA). In early 2021, B&M served HSBC with a s26 request for a new tenancy. Administrative errors at HSBC meant that the s26 request was not dealt with, and HSBC therefore lost the opportunity to mount a legal case that B&M should not be granted a new lease.

In early 2021 HSBC (apparently in ignorance of the s26 request) entered into a conditional agreement for lease (AFL) of the same premises with Aldi Stores Limited, under which Aldi would carry out a series of substantial redevelopment works on HSBC’s behalf. After entering into the conditional AFL, HSBC then attempted to serve a s25 notice on B&M, terminating its lease. This was not effective due to the s26 notice already served, at which point HSBC realised its error.  

B&M issued lease renewal proceedings seeking the grant of a new ten-year tenancy. HSBC proposed an 18-month term, with a landlord’s redevelopment break clause exercisable immediately on six months’ notice. 

At the original trial, the court ordered a new lease of five years, with the redevelopment break clause requested by HSBC. By the time the appeal was heard the sole live issue between the parties was the date of operation of the break clause. 

B&M’s appeal

B&M’s ground of appeal was that the trial judge was wrong to grant a rolling break clause operable at any time, because this defeated a key principle of the 1954 Act, namely that a tenant ought to be afforded a reasonable level of security of tenure on the grant of a new tenancy.

The question for the High Court was therefore whether the trial judge had misdirected himself in principle. 

Summarising the trial judge’s review of the authorities, Mr Justice Miles emphasised the following principles:

• the 1954 Act is not an instrument to defeat redevelopment 
• where there is a conflict between a tenant’s security of tenure and a landlord’s right to redevelop, the court must decide according to justice and fairness
• the court has a wide discretion to decide the issue of break clauses;
• this involves a balancing exercise, taking into account all the circumstances of the case.

The High Court concluded that the trial judge had applied the correct legal test, had properly considered the circumstances of the case, and had exercised wide discretion. B&M’s appeal was subsequently dismissed. 

Deadlines in business tenancy renewals  

The background facts provide a salutary reminder of the importance of complying with procedural deadlines when it comes to business tenancy renewals. It appears quite possible that if HSBC had responded in time to the s26 request then (in the light of the AFL) it might well have successfully opposed the grant of a new tenancy and could have avoided this case and the appeal.  

Beyond that, the case shows that the court will conduct a highly contextual balancing exercise as to whether an immediate redevelopment break clause is inconsistent with the 1954 Act, insofar as security of tenure and a landlord’s ability to redevelop may conflict. With the 1954 Act currently under review by the Law Commission, it remains to be seen whether any further impact or change will come to light. 

Harriet Allsop is in the property litigation team, specialising in commercial landlord and tenant disputes, working closely with the commercial real estate department on lease renewals, while assisting with the statutory notice formalities and lease renewal proceedings for both landlords and tenants. James Underwood is a first seat trainee in the property litigation team.