Contributors
Introduction
Due to a postroom error, the Defendant Landlord HSBC failed (by not serving the required counternotice) to formally oppose the Claimant Tenant B&M's s26 request for a new tenancy pursuant to the Landlord and Tenant Act 1954. B&M's application for a new tenancy was subsequently heard in the Central London County Court. HSBC had meanwhile agreed to let the premises to Aldi for Aldi to redevelop, if vacant possession (VP) could be recovered from B&M. Thus, unable to oppose B&M's lease being renewed, HSBC sought a renewal lease on terms that would allow early VP on the grounds of redevelopment.
The parties agreed most of the new lease terms, save for two crucial aspects which fell on the Court to decide. They were:
- The length of the term of the new lease
- Whether the lease should include a redevelopment break clause.
After hearing expert evidence from both parties, the Court allowed the inclusion of a redevelopment break clause to be effective immediately in order to avoid interfering with the HSBC's intention to allow Aldi to redevelop the site, despite the severe financial implications for B&M of that decision.
Background
HSBC's original intentions were to oppose the s26 request and allow Aldi to redevelop the site at the earliest possible opportunity. The inclusion of a redevelopment break clause would allow HSBC to do this, rendering the issue of the length of term of the new lease not as relevant as the break clause issue. Therefore, emphasis was placed on resolving the issue of the redevelopment break .
The Court reminded itself that the 1954 Act “should clearly not be used as an instrument to defeat development”[1]. The Court considered that, under the relevant test, it had to determine whether there was a "real possibility (as opposed to a probability) that the premises in question will be required for reconstruction during the continuance of the proposed new tenancy"[2]. That in turn depended on whether HSBC's planning application would be successful. The Court heard from experts from both parties in relation to planning prospects and agreed with HSBC's expert that there was indeed a real possibility of planning permission being granted.
B&M then argued that allowing the renewal lease to break for redevelopment would have significant financial implications for their business and local jobs. The Court accepted that "the consequences of a break clause will act harshly on"[3] B&M, but accepted authorities cited by HSBC that B&M's security of tenure should not be of 'paramount consideration'[4] (as B&M suggested). Instead, it decided that HSBC's wish to allow Aldi to redevelop the site would 'trump [B&M's] position'[5].
So the Court concluded that the inclusion of a redevelopment break clause would be appropriate. HSBC needed to get VP back from B&M quickly in order for the letting to Aldi to go ahead (the letting being conditional on VP being obtained by a particular long-stop date in the near future). Based on this necessity and prospect of early planning success, the Court decided that there should be a redevelopment clause effective immediately, on six months' notice.
Practical considerations for landlords and tenants
This case highlights the difficulty that tenants face when attempting to prevent a landlord's redevelopment break clause. Cost implications to the tenant of having to vacate, the overriding of security of tenure and the potential loss of jobs were considered by the Court but disregarded in order not to prevent a development scheme for which there was a real possibility of obtaining planning permission.
Despite the favourable outcome for the landlord, this case should still highlight to landlords the importance of responding to s26 requests by appropriate counternotice within two months, if redevelopment is intended. Significant time and money could have been saved in this case if HSBC had responded to the s26 request in the first instance. That said, it may be felt a little surprising that the landlord was able to retrieve its position so effectively despite failing to do the very thing the 1954 Act required it to do to prevent the tenant renewing its lease.
This article was also authored by Moga Moodley, Trainee Solicitor at Womble Bond Dickinson.
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Footnotes:
[1] Reohorn v Barry 1956
[2] National Car Parks Limited v The Paternoster Consortium Ltd 1990
[3] Paragraph 117 of the judgment
[4] Paragraph 71 of the judgment
[5] Paragraph 160 of the judgment
