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

When settling the terms of a new business tenancy under the Landlord and Tenant Act 1954, the court must balance the tenant’s need for security of tenure against the landlord’s legitimate redevelopment interests.

There is no rule that a tenant must receive a minimum period before a redevelopment break clause can operate. An immediately exercisable clause may be appropriate where delay would materially jeopardise or frustrate a sufficiently developed redevelopment scheme. The court retains a wide discretion to decide what is fair and reasonable in all the circumstances.

B&M occupied retail premises under a tenancy continued by section 24 of the Landlord and Tenant Act 1954. It sought a new tenancy. HSBC proposed a short term containing an immediately exercisable redevelopment break clause, supported by a conditional agreement for lease with Aldi and a planning application.

HHJ Saunders ordered a five-year new lease with a rolling redevelopment break clause exercisable on six months’ notice. B&M appealed, alleging that fresh evidence undermined the redevelopment prospect and that the clause defeated the statutory purpose of security of tenure. The first ground was abandoned. The central issue was whether the judge had applied the correct balancing exercise and could properly permit immediate operation of the clause.

1. Appeal dismissed. The judge had not erred in principle or acted outside the wide range of decisions rationally open to him.
2. The court’s task under the Landlord and Tenant Act 1954 is to decide what is fair and reasonable between landlord and tenant in all the circumstances. The relevant considerations include the tenant’s hardship and need for security of tenure, the landlord’s redevelopment interests, the development’s state of advancement, and the consequences of delay.
3. A landlord’s wish to redevelop does not automatically prevail. The court may reasonably delay the operation of a break clause where that protects the tenant without preventing or unreasonably delaying redevelopment.
4. Conversely, delay may be unreasonable where it places the redevelopment scheme at material risk. The judge was entitled to give significant weight to HSBC’s conditional agreement for lease with Aldi, the planning application, the contractual deadlines, and the risk that Aldi would not proceed if vacant possession could not be obtained in time.
5. There is no rule requiring every redevelopment break clause to be delayed. National Car Parks Ltd v The Paternoster Consortium Ltd demonstrated that an immediately exercisable clause may be appropriate. Such a clause is not inherently inconsistent with the statutory policy of providing business tenants with security of tenure.
6. The House of Lords’ observations in O’May v City of London established only that the Act provides some security of tenure. They did not make that consideration paramount in redevelopment cases. The authorities required a balancing exercise, which HHJ Saunders had undertaken despite some imprecise wording in his judgment.
7. The appellate question was whether the judge erred in principle or exceeded the wide range of rational outcomes, not whether the appellate court would have reached the same conclusion.

• High Court, Chancery Appeals List: On appeal from the Central London County Court, Mr Justice Miles dismissed the appeal on 10 October 2023.
• Central London County Court: HHJ Saunders ordered a five-year new tenancy with a rolling redevelopment break clause exercisable immediately on six months’ notice.