Redevelopment break clauses in business tenancy renewals

Case Commentary: B&M Retail Limited v HSBC Bank Pension Trust (UK) Limited [2023] EWHC 2495 (Ch).

This case clarifies the law on redevelopment break clauses in business tenancy renewals.

Whilst it is a welcome ruling for landlords wishing to protect their redevelopment options, tenants may find their occupation is less secure even where they are protected by the security of tenure provisions of the Landlord and Tenant Act 1954.

The specific circumstances involved a dispute between B&M (the tenant) and HSBC (the Landlord). B&M sought to renew their lease of retail space. The lease was protected by the security of tenure provisions of the Landlord and Tenant Act 1954, and B&M was entitled to request a new lease at the end of its initial term. The renewal itself was unopposed. However, HSBC insisted on including a redevelopment break clause in the new lease to allow them to terminate the lease early should they redevelop the site. In this case, they would only have to provide six months’ notice to exercise the break and terminate the lease.

Ultimately, the court ruled in favour of HSBC and B&M’s later appeal to the High Court was dismissed.

The initial trial decision (later confirmed by the High Court) considered the following factors:

Is redevelopment a “real possibility”?

HSBC demonstrated redevelopment was more than just an idea and that relevant plans and agreements were well-advanced.

Weighing the interests of both parties

The court ruled that HSBC was reasonable in protecting its redevelopment options to add value to its reversionary interest.

Whilst it was noted that the exercise of the break could cause the tenant loss and affect their business, they had not sought to mitigate this by advancing plans to find alternative premises.

The purpose of the Landlord and Tenant Act 1954 and previous case law.

B&M’s appeal was pursued on the basis that the Landlord and Tenant Act 1954 was intended to give tenants greater security. They argued that the inclusion of a break clause for redevelopment would undermine the purpose of the legislation. Weight was given to previous case law, which allowed immediate break clauses even where tenants enjoyed protection under the 1954 Act. As such, the court ruled a redevelopment break clause could also be appropriate even in the context of the 1954 Act.

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