Caterpillar Property Limited & Anor v Park Cakes Limited

For protection under Part II of the Landlord and Tenant Act 1954 to be excluded by section 28, the landlord and tenant must have a binding and mutually enforceable commitment for the grant of a future tenancy. A tenant’s option to renew does not satisfy that requirement before it is validly exercised. An option imposes no present obligation on the tenant to take a new lease, and the landlord’s obligation remains contingent on the option’s exercise and compliance with its conditions. Once fully exercised, reciprocal obligations arise. The relevant perspective is that of the tenant, for whom an unexercised option is analogous to an irrevocable offer.

The appellants granted Park Cakes Limited two identical 20-year factory leases, each containing a tenant’s option to take a further 10-year lease after the seventeenth year, subject to notice and payment of rent to the end of the term. The rent under the contractual renewal mechanism would exceed the prevailing market rent.

The tenant sought a new tenancy under Part II of the Landlord and Tenant Act 1954. District Judge Bond held that the unexercised option did not exclude statutory protection. The landlords appealed to the Court of Appeal. The central issue was whether the option constituted an agreement for the grant of a future tenancy within section 28.

1. The appeal was dismissed. Lewison LJ, with whom Asplin LJ and Elisabeth Laing LJ agreed, upheld the District Judge’s conclusion that the tenant remained entitled to protection under Part II of the Landlord and Tenant Act 1954.
2. Section 28 requires a written agreement for the grant of a future tenancy which is binding and enforceable by both parties. An option is sui generis. It imposes no obligation on the grantee to take the new lease, while the grantor’s obligation is contingent on valid exercise.
3. The distinction between an unexercised and an exercised option is decisive. Before exercise, the tenant has contractual rights capable of producing an enforceable right to a new tenancy, but neither party has reciprocal obligations to grant and take it. Upon full exercise, mutual obligations arise.
4. Conditions attached to an option must be strictly complied with. Depending on the terms, even a trivial breach may prevent valid exercise. The contractual position may therefore be more precarious than the statutory protection, under which opposition may depend on matters such as persistent rent delay or substantial repairing breaches.
5. The landlords’ purposive argument failed. The statutory policy of protecting business tenants did not justify treating an unexercised option as an agreement for section 28. The analysis should be made from the tenant’s perspective, on which the option is analogous to an irrevocable offer. The Court applied RJ Stratton Ltd v Wallis Tomlin & Co Ltd [1986] 1 EGLR 104 and endorsed the District Judge’s reasoning.
6. The Court also observed that the landlords’ construction would exclude statutory protection before the tenant could exercise the option, a result Parliament was very unlikely to have contemplated. No remittal or further order was stated.

• Court of Appeal (Civil Division) — The appeal from the County Court at Leeds was dismissed. Permission had been granted by District Judge Bond, and the appeal was accepted pursuant to CPR Rule 52.23.
• County Court at Leeds — District Judge Bond held that an unexercised tenant’s option to renew did not exclude the tenancy from protection under Part II of the Landlord and Tenant Act 1954.