Landlords must be careful with rights to break

If landlords ever need a reminder that a decision to exercise a break right in a lease should be backed up by well presented, thought through evidence then the recent County Court case BMW (UK) Ltd v K Group is essential reading.

The key term that the Court was asked to decide which is of most interest here is whether the landlord, K Group Holdings Ltd, should be granted an option to determine the main lease on a car dealership in Park Lane at any time between the second and fifth anniversary of the new lease. The lease was the subject of the renewal proceedings under the Landlord and Tenant Act 1954 (the Act).

To exercise the break option, the landlord would have to prove a ground of opposition under section 30(1) of the Act, but the only ground admitted was that (at the relevant break date) the landlord intended to occupy the premises for the purpose of a business carried on by K Group.

When the Court looked closely at the Landlord’s plans to redevelop, it needed to be certain that they were “genuine and workable”, and such that they amounted to “a possibility of a bona fide decision to operate a break clause if one be granted”.

However it was felt that the evidence for redevelopment was so vague and sketchy and there was a failure to produce any documentary evidence to give credibility to the suggestion that the landlord intended to run a business from the premises in two to five years’ time.

The Court had to consider whether the sad lack of evidence justified “the dramatic effect the break clause would have on BMW” and determined to refuse the inclusion of the landlord’s proposed break clause.

This decision serves as a reminder to landlords that when seeking a break in a lease renewal it is important to produce as much solid evidence as possible to support their intention. It is documentary evidence spelling out plans in detail that will convince the Court that the landlord has a strong intention to redevelop or occupy the premises.

The case will be seen as welcome news for tenants wishing to protect their businesses by seeking certainty at lease renewal time. It should also see the end of frivolous break options by landlords seeking to hedge their positions.

The timing of this decision is interesting in the light of the announcement earlier this year that the Law Commission will review how the right to renew business tenancies, set out in part 2 of the Act is working and will consider options for reform. The review is due to be published at the end of this year.