B&M v HSBC: A lack of certainty for tenants

In B&M Retail Ltd v HSBC Bank Pension Trust (UK) Ltd [2023], the landlord achieved its redevelopment aims despite failing to validly oppose a lease renewal.

Background

B&M was the tenant of a retail unit and HSBC was the landlord. HSBC had entered into an agreement for lease with redevelopment obligations with Aldi, pending expiry of the B&M lease. Unaware, due to a post room error, that B&M had already served a section 26 notice requesting a new lease, HSBC served a section 25 notice to oppose B&M's renewal on the ground of redevelopment. The section 25 notice was ineffective, and HSBC was out of time to oppose the new tenancy. HSBC requested that the new lease to B&M include an immediate redevelopment break right.

Decision

At first instance the court applying its discretion, decided that the renewal lease should include an immediate redevelopment break on six months' notice on the basis that delay may put the redevelopment at risk. On appeal by B&M, the High Court considered whether the correct legal test had been applied, as well as the factors for and against inclusion of a day one redevelopment break (which included HSBC's advanced redevelopment plans). The High Court dismissed the appeal and agreed that the day-one redevelopment break should be included on renewal.

Consequences

By balancing the tenant's right to security against the landlord's right to redevelop, the appeal court effectively gifted an immediate redevelopment break to HSBC as if a valid counter-notice to B&M's section 26 notice had been served. For tenants this presents an inarguable conflict with one of the key tenets of commercial landlord and tenant law; security of tenure. A commercial tenant with a protected lease cannot operate with security if it risks receiving a break notice on day one of its renewal tenancy. What certainty is it left with?