Landlord redevelopment plans vs A tenant’s right to security – a balancing act
Quite often in Landlord and Tenant Act 1954 lease renewals, parties do not agree on terms when negotiating and may reach an impasse. At this point one of the parties, usually the tenant, may apply to the Court for determination of the terms of a new tenancy. An application to the Court for a new tenancy can only be made if the lease has security of tenure.
What is security of tenure?
Security of tenure applies to business tenancies only and offers a tenant a statutory right to a new lease on similar terms to the existing tenancy when it expires.
Where negotiations between landlord and tenant are not successful, a tenant may decide to apply to the Court for a determination of the terms of a new lease. A tenant’s statutory right to a lease renewal is protected by applying to the Court for a new tenancy within the statutory period i.e. before the date specified in a 1954 Act Section 25 or Section 26 Notice, or before the expiry of an agreed extension in writing.
Why is security of tenure important?
Security of tenure is important to both landlords and tenants, but for different reasons.
Some landlords may be unaware of a tenant’s statutory right to a lease renewal if a lease has security of tenure. As a result, landlords may unintentionally grant a lease with security of tenure which may not accord with a landlord’s plans for the property if they only intend on having the tenant in the property for a short term because for example, they may want to redevelop the property.
On the other hand security of tenure is favourable for tenants because it offers them security of being able to smoothly run their business without having to leave the property at the expiry of the contractual term. Some tenants may be unaware of their rights to a new lease at the end of a term and are forced out of the property by landlords, which may have a detrimental impact on the business being carried on by the tenant at the property.
It is possible for a lease to be contracted out of the 1954 Act meaning a tenant does not enjoy security of tenure. There are strict procedures that need to be followed in order to successfully exclude a lease from the 1954 Act.
What stance does the Court take when balancing the needs of a landlord to redevelop against a tenant’s right for security?
The case of B&M Retail Limited v HSBC Bank Pension Trust (UK) Limited sheds light on how the Court balances competing demands of landlord and tenant when parties dispute certain lease terms.
In short, this case required the Central London County Court to decide whether there should be a landlord redevelopment break clause, exercisable on not less than 6 months’ notice to accord with the landlord, HSBC’s, redevelopment plans for the property.
HSBC’s reasoning for requesting a redevelopment break clause came about as a result of it losing its right to oppose B&M’s Section 26 Notice on the redevelopment ground (s.30(1)(f) 1954 Act) because of administrative failures during the Covid-19 pandemic. Its only option to effect its redevelopment plans was to agree to the grant of a new lease subject to inclusion of a landlord redevelopment break clause.
HSBC had already entered into an Agreement for Lease with Aldi requiring it to carry out redevelopment works. The Agreement was conditional on the Landlord obtaining vacant possession of the property and satisfaction of planning conditions relating to the redevelopment.
Both parties acknowledged HSBC’s redevelopment plans were genuine and that there was real possibility that HSBC would be granted planning permission to carry out the redevelopment. The tenant, B&M, argued that its right to security in the property should trump the landlord’s right to redevelop the property. The Court disagreed and said that it will only upset a landlord’s redevelopment ambitions if there is a major factor which points the other way.
The Court agreed that more rent could be generated under a 20 year lease to Aldi than a 10 year lease to B&M (which B&M was requesting) however the Court acknowledged that B&M would be impacted as a result of losing its store to a rival retailer. B&M argued that closure of its store would result in job losses but the Court dismissed this as the agreement with Aldi was likely to create more job opportunities.
This case proves useful in essentially understanding which parties’ needs the Court is likely to favour when the question arises of whether a landlord’s right to redevelopment outweighs a tenant’s right to security, particularly where there is a real possibility that the Landlord’s re-development plans will materialise.
If you require any advice with regards to the above, Taylor Walton have a designated commercial property department with experienced solicitors that will be able to help you. To make contact with one of the team please send us your details via our online form.
Disclaimer: General Information Provided Only
Please note that the contents of this article are intended solely for general information purposes and should not be considered as legal advice. We cannot be held responsible for any loss resulting from actions or inactions taken based on this article.
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