Legal: Commercial landlord regains possession against opposition…

In the case of B&M Retail Ltd v HSBC Bank Pension Trust (UK) Ltd [2023], The Central London County Court was asked to rule on a claim for possession by the landlord under the rules of the Landlord and Tenant Act 1954.

The landlord was seeking possession against the tenant’s security of tenure under the Act when it wanted to exercise Ground F of the Act. It wanted to redevelop the premises, against the tenant’s wishes to renew its lease.

The Landlord and Tenant Act 1954 (Part II) affects most commercial (business) tenancies in England and Wales.

Note: This article refers to English law. It is not a definitive interpretation of the law. Every case is different, rules change over time and only a court can decide – always seek expert advice before taking action or not.

The Act recognises that businesses need some protection as they stand to lose goodwill when they may have spent years building-up a business in a location, not to mention investment in stock and equipment, if they were to be summarily evicted when their lease expires.

Accordingly, the Act, which has stood the test of time since the 1950s, gives business tenants a right to remain in their premises and renew their leases, at a full market rent, but on similar terms to the original lease.

Landlords and tenants have the option of avoiding this strict security of tenure protection providing the tenant agrees to exclude the provisions for security of tenure – known as letting outside the Act – before ageing a tenancy, by following a strict documentary procedure.

Restricted right to possession

Landlords also have a right to possession at the end of the lease term under certain restricted conditions. So a tenant’s right to renew can be resisted by the landlord only on one or more of seven grounds set out in the Act:

Ground A: Breach of the repairing covenants, a discretionary ground – the judge decides – when there’s been failure to keep the premises in good repair, but like other grounds it does not on its own automatically entitle a landlord to possession.

Ground B: Persistent delay in paying rent, another discretionary ground which means the landlord must show the tenant should not be granted a new tenancy in view of its persistent failure to pay the rent on time. There is a danger for the landlord here if it has habitually accepted the late payments.

Ground C: Breaches of other obligations, yet another discretionary ground where the landlord must show the breaches were serious enough to deprived the tenant of a new tenancy, but any evidence of acquiescence in a breach will destroy the landlord’s argument.

Ground D: Where there is the availability of suitable alternative accommodation, the court has little or no discretion here. The landlord must show that they have offered suitable alternative premises to the tenant on lease terms that are reasonable.

Ground E: Where the property is sublet in part, the superior lease it ended, and possession required for letting or disposing of whole of property, it’s another discretionary ground.

Ground F: Where the landlord intends to redevelop the premises. This is a mandatory ground where the landlord must show that it intends to demolish or to reconstruct the premises which could not be achieved without possession. This ground is more likely to succeed if the premises are old and in need of major works. There are fines if this proves to be a sham.

Ground G: Where Landlord intends re-occupy the premises itself, again a mandatory ground. The landlord must have owned the premises for at lease five years before the leases ended and must show it intends to occupy the premises for its own business purposes or as its residence.

Where a tenant is removed from the premises compensation under grounds E, F & G on a scale set within the Act will be payable by the landlord.

The outcome

In the above case of B&M Retail Ltd v HSBC Bank Pension Trust (UK) Ltd the court ruled in the landlord’s favour granting it a redevelopment break operable immediately on six months’ notice.

This decision is important because it involved a situation where the landlord had failed to serve a required counter notice of its opposition to a new tenancy when the tenant served its notice to renew under section 26 of the act.

Usually these rules are very strictly adhered to and these claims for possession are by no mean certain under any of the above grounds, but it this case the court showed a degree flexibility which favoured the landlord.

The Background

HSBC Bank Pension Trust (UK) Ltd owned the premises in North London let to B&M Retail Ltd, as a retail store. The lease ended in December 2020 following HSBC’s negotiations with Aldi Stores Limited for the grant of a conditional agreement for a lease, subject to obtaining vacant possession and planning approval for Aldi to carry out redevelopment works.

HSBC served notice in May 2021 seeking to terminate the lease with B&M citing redevelopment under Ground F of the Act.

But B&M had already served its own request in January 2021 under section 26 of the Act for the grant of a new lease, and HSBC had failed to respond to that notice within the required two months’ deadline. HSBC claimed internal mail delays due to Covid.

Given HSBC’s inability to avoid granting a new lease it requested a development break clause pending the planning permission being granted for the Aldi development, which after some argument over this possibility the court granted the break clause.

The inclusion of the redevelopment break clause was exercisable immediately on six months’ notice allowing the new lease to be brought to an end, allowing time for the HSBC agreed development works with Aldi.

This court decision is likely to be welcomed by commercial landlords who find themselves in this situation as the court indicated that it will only disrupt a landlord’s redevelopment plans where there is clear evidence that the redevelopment proposals are not viable.

The case was won by HSBC at considerable cost to itself and it goes to underscore the importance of serving notices under The Landlord and Tenant Act 1954 correctly and in good time.

However, it should be remembered that this is the decision of a County Court and may yet be subject to appeal to a higher court.

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