Imposition of a landlord redevelopment break during renewal proceedings - Ministry of Sound v The British and Foreign Wharf Company Ltd

Ministry of Sound Ltd ("Tenant") occupied the Property under a lease for a term of 15 years with security of tenure, which expired on 29 September 2024. The Landlord did not oppose the grant of a new 15 year lease but it did require the inclusion of a break clause exercisable by the Landlord on the grounds of redevelopment. The inclusion of this clause was the primary issue.

The County Court was asked to decide whether:

there is a "real possibility" of development during the term of the new lease
whether the Court should exercise its discretion to include such a break option.

The Tenant argued that the inclusion of this clause would create great instability for their business and discourage investors.

Background

The Tenant was aware of the potential redevelopment of the Property and wider site the Property is situated in. The Tenant had attended meetings and was engaged with the development plans as there was a prospect of a new and potentially expanded club facilities within the redeveloped land. The Judge accepted that Ministry of Sound was one of the most well-known nightclubs in the UK and internationally renowned. The planning experts stated that there was a desire by Southwark LBC and the GLA to retain the claimant as the specific operator of the club in any redevelopment and this featured within Southwark's specific planning policy. The planning expert stated in the case that in planning policy, there is a requirement to retain entertainment venues when redevelopment takes place but not the operator's themselves. In this case the Judge held the operator would survive and thrive if relocated to another location in London and would continue to enjoy considerable planning leverage and influence as further potential projects advanced. The Tenant consistently stated that inclusion of the rolling break clause would have a significant financial impact to carrying out their business. The Judge held that there was not sufficient financial documentation evidencing financial harm.

Agent of change

The concept of "Agent of Change" was discussed at great length. This is a principle that requires stakeholders to recognise the standing and importance of existing uses and to devise and implement schemes of development that mitigate and minimise the impact of existing uses on such development. The result of this principle is to the effect that existing businesses should not have unreasonable restrictions placed on them as a result of development permitted after they were established. A planning application should be required to provide suitable mitigation before the development is completed. An example of the agent of change principle in action, was the redevelopment of Eileen House situated opposite the entrance to Ministry of Sound. The development included significant acoustic mitigation within the design and a "tolerable current noise level easement" was also agreed to mitigate against potential claims of nuisance for occupiers.

Real possibility of redevelopment

The venue is situated in Elephant and Castle in a place that the Court held was "ripe for redevelopment". They confirmed that to prove a real possibility of development, a Landlord does not have to establish that development is imminent, designed, or devised. A real possibility was held to be more than fanciful or illusionary. It is not necessary for a Landlord to demonstrate that planning will be or is likely to be granted for any particular scheme. Finance does not need to be in place nor does the Landlord need to show they have possession of the development site. The planning experts agreed that the site did have potential for redevelopment and that this could be achieved if the parties used their "best endeavours". The Judge was satisfied that the Landlord had proved there was a real possibility that the venue could be required for redevelopment during the term of the new lease despite the many and even formidable challenges that laid ahead. With the agent of change principle, the Judge said there is a possibility that the venue may be redeveloped into a new venue or for commercial uses.

Inclusion of a break clause

The Judge permitted the inclusion of the Landlord's rolling break clause exercisable on the redevelopment ground not before the 27th month of the term. This gives the Tenant some stability that will allow them to plan for the future. The Judge outlined that the triggering of the break clause would only be the start of a longer and potentially contentious process. The Landlord would have to serve an opposed section 25 notice and in order to terminate the Lease prove any proposed redevelopment under ground 30(1)(f) of the Landlord and Tenant Act 1954. It was also discussed that it was never the intention of the 1954 Act to stand in the way of redevelopment and at the end of the Lease the Landlord would still have a right to terminate the lease if they were able to provide redevelopment under ground 30(1)(f). In this case the Judge held that without the inclusion of a redevelopment break clause, any possibility of redevelopment would be stifled and the effect was that the Tenant would essentially have a veto placing them in an unjustified commercial and financial advantage. As a result of the inclusion of the Landlord's break clause exercisable on redevelopment the Rent payable under the lease was reduced by 26%.

For more information or advice, please contact Sam Winter-Alsop in our Real Estate team. Sam volunteers with Music Venue Trust providing pro bono advice to grassroots music venues.