Colin’s Options: Park Cakes V Caterpillar Property

Park Cakes create cakes for M&S including the beloved Colin the Caterpillar cakes. Decided in the Leeds Business & Property Court about options in leases and whether the subsequent leases are in the 1954 Act. Richard covers market rents and potential upwards and downwards rent reviews. 

In this episode, hosts Richard and Lizzie take a closer look at Park Cakes V Caterpillar Property Limited (M80LS041 20 March 2026), a decision from the Leeds Business and Property Court involving Park Cakes, the manufacturer behind M&S’s iconic Colin the Caterpillar. This is not just a story about cakes. It’s an exploration of how options in leases operate, including what happens when those options are exercised and whether any resulting lease falls within the protection of the Landlord and Tenant Act 1954. Richard explains that a renewal option gives the tenant an extra choice, not an automatic outcome and the real value lies in deciding which route to use, and when.

When it comes to lease options, you can’t always have your cake and eat it.

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Transcript

Lizzie C
Colin the caterpillar cakes and commercial lease strategy. That's 2 phrases you never thought you'd hear in the same sentence, but that's exactly where we're heading today. We're looking at a recent decision, Park Cakes Limited and Caterpillar Property Limited. If you're a tenant with an option to renew, the key question is, do you follow the contractual route set out in your lease or do you rely on your statutory rights? As we'll explore, the answer isn't always obvious and getting it wrong can have real consequences. Richard's going to walk us through this, including how market rent is assessed and where upwards and downwards rent reviews come into the mix. So whether you're advising on leases, managing assets or just want to understand how these clauses work, settle in, get a cup of tea and of course your choice of caterpillar cake. Hi Richard.

Richard Snape
Hi Lizzie, what have you been up to lately?

Lizzie C
Not a lot, not much. It's A Friday afternoon, so we're on the home straight to the weekend and we've got another case to talk about. This one has piqued my interest because it's called Park Cakes and Caterpillar Property Limited. So all I can think of is Colin the Caterpillar.

Richard Snape
Well, you're not wrong, Lizzie, but not for the right reason. But Park Cakes, I looked at this, I didn't, I looked into it quite separate from the law report, so I hope I'm right. Park Cakes produce cakes for Marks and Spencers and have done for 80 years, including Colin the Caterpillar cake.

Lizzie C
Fantastic. Well, I think we're getting off to a good start of the cake.

Richard Snape
And they sell over a million Colin the Caterpillar cakes every year.

Lizzie C
Crikey.

Richard Snape
So there you are.

Lizzie C
So you're not sure how many of those they've sold to me, but a fair few. Yeah.

Richard Snape
And they're based in Oldham. They've got a couple of leaseholds of a couple of manufacturing sites in Oldham and Greater Manchester, which were the subject matter of the case.

Lizzie C
So the case was at Leeds Business and Property Court and the decision was on the 20th of March. And it's all about options and leases and whether any subsequent leases will be in the 54 Landlord and Tenant Act. So do you want to tell us what the problem was with this case, the background facts?

Richard Snape
Well, it's section 28 of the 54 Landlord and Tenants Act, which basically says, I'll paraphrase it, it's where the landlord and tenant agree to grant a future tenancy on terms and from a date specified then it won't come within the 54 Act. And it's obviously intended to deal with things like agreements for lease between the two parties. If you then subsequently grant a lease, it's within the 54 Act, but not the agreement for lease. But it's a tricky issue. Options generally are a tricky issue as we don't have to see. The question is basically is an option to renew a lease. a grant of, an agreement to grant a future lease. because if it is the future lease, you can exercise the option, but if you do, the future lease won't be in the 54 Act if it's exercised via an option to renew, which would be a bit of a major gap in the legislation if that was the case. I have seen arguments about it years and years ago, actually, but this is what the case was about. Both landlord and tenant wanted a a new lease. They had an option that could be, if it was exercised, it could be exercised at the end of 17 years by 12 months notice and the end of 17 years was June the 13th, 2023. What the landlord wanted to basically argue is that it was on the same terms apart from the rent. and there was a fixed method of calculating the rent. If you come within the 54 Landlord and Tenant Act, Section 34 in the absence of agreement between the parties basically says you're entitled to a market rent and the landlord wants to use this fixed formula because they could get more rent than a market rent. People miss the point a little bit because Section 34 is basically the potential upward and downward rent review if you were within the 54 Landlord and Tenant Act. if the rents are falling, then you get a lower rent. But I'll leave the detail of that to the valuers of this world. So that was the basic argument, is an option, an agreement to grant a future lease, in which case the future lease will not be within the 54 Act?

Lizzie C
Okay, so what did they say? What did the courts say?

Richard Snape
Well, there's a lot of arguments, quite cogent arguments, which I must admit I haven't thought about too much. There was one case, I'd come across this case years and years back, a case from 1991, a High Court case called Spiler and Glen Crown, which are about options to purchase freeholds on property in Finchley. But because the problem is in 1989, the law of property miscellaneous provisions came in to replace the predecessor. Section 40 of the Law of Property Act in Section 2 law property miscellaneous provisions that basically says that you know, contracts and land, with a few exceptions, must be in writing, contain all the express terms in one document and be signed by the parties. And so what's the consequence of that? And not an option to renew, but an option to purchase. Because the option to purchase was in writing contained the express terms signed by the parties. But then when you exercise the option, is that a separate sort of provision, contractual provision? Because, you know, the person subject to the option, if it was, could just render the option to purchase null and void, worthless, because they just don't agree to sign anything. And Spire and Glen Crown, which is a bit of a policy decision, it was a lacuna in the original legislation, basically said it's just the actual grant of the option and not the exercise that has to comply with section 2. But the argument went that if that's the case, then, you know, does that have any bearing on this? You know, could you actually say that the grant of the option to renew the lease is the sort of legally binding part, if you like? And the court to some extent, I can understand why, but glossed over that, because if it is the legally binding part of it, then the argument holds. But other cases, it said that, referred to the fact that basically, well, if they said that an option is, up to the tenant, it's not bilateral, it's unilateral. The tenant agrees the option then at a later stage. You know, the tenant doesn't have to be bound to exercise the option of landlords subject to prizes and conditions precedent might have to be bound to actually, you know, sort of grant the new lease, but it's not, it's one sided and that tenant isn't and it's not the same as sort of Section 2 of the Law of Property Miscellaneous Provisions Act. And they also said that you're going to look at the reason for the legislation, the 54 Landlord and Tenant Act could easily be circumvented if options to renew didn't come, well, the subsequent grant of the lease didn't come within the 54 Act and it's against the principles of the Act. And it's not the same as an agreement to lease in the future, a contract to lease. I can understand the arguments actually, it's quite a sort of significant argument and that's, it's again a bit of a policy decision, but options to grant leases, the leases can come within the 54 Act if that case is correct. Haven't seen if it's going to appeal. I'm sure Colin, the caterpillar cakes raise enough money to go to appeal. But yeah, quite a significant case.

Lizzie C
Why is this one so significant?

Richard Snape
It's, I mean, one of the arguments that landlord and council put forward was that you don't need the benefit of the 54 Act if you've got an option to renew. And that's not necessarily the case because it's a well-known little trick landlords give you a sort of shortish lease and then use a non-fault ground against you, especially where you've got a lot of goodwill to build up and fitting out costs like restaurants and the likes. You landlords can use ground F or ground G against you. They can tend to demolish, reconstruct or ground G, occupy for their own purposes and usurp your business for you. Do you remember we did a case last year, the lead mill and VL properties in the lead mill. Yeah. In Sheffield, where they refused leave to appeal. But that basically happened. So I think, you know, to protect against landlords using non-false grounds, most notably FNG. An option is a good idea or a longer lease with a break. An option is a better bet for tenants than a longer lease with a break because depending on the duration of the lease, you pay more or less stamp duty land tax or land transaction tax if you're in Wales. which depends on the duration of lease, a five year lease with an option to renew for five years as a five year lease, a 10 year lease with a break as a 10 year lease, one pays less tax, which can't be a bad idea. So I'd be a bit concerned about an appeal, but we'll have to see on that. And that's why it's important.

Lizzie C
Thank you very much, Richard.

Richard Snape
There you go.