Break Notices: A Recent Development

Originally published in October 2004

A recent case1 has provided guidance into the operation of Section 35 of the Landlord and Tenant Act 1954 in lease renewal proceedings where a landlord is seeking a break clause in the new lease to facilitate a proposed redevelopment.

Section 35(1) of the 1954 Act provides:-

"The terms of a tenancy granted by order of the court under this Part of this Act (other than terms as to the duration thereof and as to the rent payable thereunder) shall be such as may be agreed between the landlord and the tenant or as, in default of such agreement, may be determined by the court; and in determining those terms the Court shall have regard to the terms of the current tenancy and to all relevant circumstances."

The Facts of the Case

The claimant was a lessee of commercial premises for a term of 25 years from 25 March 1977. In August 2001 it served a request for a new tenancy on the defendant landlord pursuant to Section 26 of the 1954 Act specifying 30 August 2002 as the start date for the new tenancy. The landlord did not oppose the claim for a new tenancy and the parties agreed that the new term would be 14 years. However, there was a dispute as to whether the new tenancy could include a break clause for redevelopment and, if so, the terms of the same.

The building occupied by the claimant was in need of extensive refurbishment which could not be undertaken while it remained in occupation. However, refurbishment alone did not make economic sense and the landlord contended that a wholesale redevelopment would have been the best solution. The Judge decided that redevelopment of the site, possibly together with neighbouring buildings, would be a reasonable and sensible approach. The defendant landlord had negotiated the sale of the building to a developer as it did not wish to carry out the redevelopment itself. However, by the date of the hearing contracts had not been exchanged, but the Judge was satisfied that the acquisition would go ahead at the agreed price irrespective of the outcome of the proceedings as it had been shown that the defendant landlord and the purchaser were committed to the transaction.

The Judge held that the premises were appropriate for redevelopment and he took into account the fact that the claimant would be compensated by the reduced rent payable under a lease containing a break clause and, under the circumstances, he decided that a break clause could be inserted into the new...