Have your cake and eat it: Caterpillar Properties v Park Cakes

In this episode, Richard and Lizzie unpack the Court of Appeal’s remarkably fast-tracked judgment handed down on 13th May, following the original County Court decision on 20th March. The case raises a fascinating and largely untested argument under section 28 of the 1954 Act: can an option to renew amount to an agreement for lease, taking it outside the protection of the Act altogether?

Richard discusses the background facts, why the appeal moved through the courts so rapidly, what the Court of Appeal decided, and what landlords, tenants and property lawyers should now be thinking about when drafting and exercising renewal options.

For anyone dealing with commercial leases, security of tenure or renewal rights, this is a case worth watching closely.

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Transcript

Lizzie Collin
The suppliers behind the iconic Colin the Caterpillar cake found themselves at the centre of an important commercial property dispute, with potentially significant implications for lease renewals and security of tenure under the Landlord and Tenant Act 1954. The courts have been looking at whether an option to renew a lease could actually amount to an agreement for lease under the section 28 of the Landlord and Tenant Act 1954, potentially meaning the tenancy falls outside the Act's protection altogether. What makes this even more interesting is just how quickly the case reached the Court of Appeal, with the judgement handed down only weeks after the original county court decision. So today we're going to look at the background facts, why the appeal moved so rapidly and what the Court of Appeal said and what this could mean in practice for landlords, tenants and anyone drafting renewal provisions in commercial leases. Hello, Richard.

Richard Snape
Hello, Lizzie. Happy Friday afternoon.

Lizzie Collin
And to you, we are back again with a nice case for a Friday afternoon, going back to the case that we talked about back in the original County Court decision on the 20th of March, and it's Caterpillar Properties Limited and Park Cakes Limited. And we like it so much because there's a link to Colin the Caterpillar, which you'll obviously, I'm sure, explain. So the Court of Appeal gave their judgment very rapidly on this one on the 13th of May. So do you want to start by explaining why their decision came around so quickly?

Richard Snape
Yeah, it was about options to renew a lease and an argument that's never been sort of discussed before under section 28 of the Landlord and Tenants Act 1954, whether if it's an option to renew, it's basically an agreement for lease. in which case it doesn't come within the 1954 Landlord and Tenant Act. And the reason it was heard so rapidly was the provisions and the civil procedure rules to allow it in exceptional circumstances. It also leapfrogged the High Court and went straight to the Court of Appeal. The reason being that the option needed to be exercised to be valid, you know, to actually create a new lease, by June the 15th, which is not long away. And that's why it was expedited. If it had gone through the normal kind of process, it would have been too late to make a decision on it. And it is quite an important issue, actually. So the Court of Appeal agreed that they would hear it and it would be leapfrogged to them on April the 22nd. It was actually heard on May the 8th and the judgement almost unheard of was on May the 13th. And that's why it was so rapidly dealt with.

Lizzie Collin
And can you remind us some of the background facts and maybe tell us what it has to do with chocolate cake?

Richard Snape
Well, it's calling the caterpillar cake, as you know, Lizzie. It's not Caterpillar Properties Limited that make them, but Park Cakes. who had got a couple of leases of premises in Oldham and in Bolton, identical leases, both of which commenced on June the 14th, 2007. And they included this option, as you mentioned, as you looked. We tried to find out. I tried to find out with Marks and Spencer's Food Hall to see if I could verify that calling the caterpillar cakes were made by Park Cakes in Oldham when I couldn't do so. And they didn't say. But they've been making cakes, apparently, for Marks and Spencer since the 1940s. And anyway, both of these leases, they were for 20 years, but they had an option to renew for a further 10 years. And the condition of the option to renew was that the yearly rent must have been paid, the rent was payable in advance by the date of the option, as I saw the condition for exercising it. And that's the, well that was the idea behind it. The reason the landlords wanted to argue that because there's an option, you know, an option is basically an agreement for lease, then the 54 Act couldn't apply to it under Section 28. is because they had a contractual rent review provision which was index linked, a fixed sort of rent provision. And under the 54 Act as an alternative, section 34 of the Act deals with what the new rent should be on the 54 Act renewal, and that's a market rent. And under circumstances, an index linked rent, the fixed rent would be much, much higher than the market rent for the premises. which is why the landlord was trying to argue that's the case, so the tenant couldn't go through a 54 Avenue. I think you remember in the past that the County Court decided that it wasn't the same. And that's what the Court of Appeal were asked to make a judgement on it.

Lizzie Collin
So what did the Court of Appeal say?

Richard Snape
They basically agreed with the County Court. It was a very short judgement for a Court of Appeal case, unanimous judgement. Basically, Section 28 says that an agreement between the landlord and tenant for the grant of a future tenancy, as the dates, I'll sort of summarise it, I'll paraphrase it, dates specified in the agreements, shall not be a tenancy to which this part of the Act, part 2 of the 54 Act applies, the leasehold renewal provisions for commercial leases. And the Court of Appeal basically said that the preamble of the 54 Act makes it quite clear it's there to protect business tenants and professional tenants and the likes in relation to keeping in the premises, although lots of them nowadays are obviously excluded from the fact it wasn't the case here. And the landlord's arguments failed. They basically said that It's not an agreement between the parties, there must be at least, it's sort of unilateral, if you like, the tenant can elect to exercise the option, in which case the landlord would be bound. And once the tenant does exercise the option, both parties are bound, but before they exercise the option, there's not some binding agreement between the two of them. They also went on to say that, I didn't really understand this part, but under an option, then there might be conditions precedent and the likes. And they started talking about one of the earlier cases, if not the earliest case that dealt with a case called Finch and Underwood in 1876. And they basically said that if there's condition precedent such as repair, then it could be It could be sort of, stop any sort of exercise of the option, just like a brake clause if you haven't repaired. You don't tend to have that in options in brakes anymore. You must have repaired the premises, find a great thing. They said the alternative under the 54 Act is not so sort of detrimental to the tenants in that if you're committing to disrepair, new landlord can oppose a new lease on ground A, but there's a discretion for the courts that it's got to be such the disrepair, such that the tenant ought not to be granted a new tenancy. There wasn't any such condition precedent in this particular option. What there was is the condition that you must have paid the rent by the option date. And they pointed out that's going to be stripped, if you like, if you haven't paid the rent, where's the alternative? The 54 act is ground B. where there's going to be a persistent delay in paying the rent, such as the tenant ought not to be granted a new lease. And again, it sort of, you know, gives a discretion to the courts. And they did also deal, well, not particularly great detail, with a case called Spiro v Glen Crown, 1991. It was a policy case, really. It was not long after the Section 2 of the Law of Property Miscellaneous Provisions Act came into force in 1989. The Miscellaneous Provisions Act says that with a few exceptions like contracts for short leases, three or less years in duration, contracts in land must be in writing, contain all the express terms or refer to all the express terms in one document and be signed by on behalf of the parties. And Spyro and Glen Crown dealt with the problem, what if there's an option? Does the exercise the option as well as the option have to be in writing and signed and contain all the express terms? Because if it had to be, the landlords could just not sign and therefore it would be null and void from pretty useless. And the court decided in that particular case, the exercise of the option didn't need the formalities, just the option itself. And they sort of skirted over that one. They went on to say that although there's no official availability of the actual county court decision, if there was, they wouldn't need to add too much to it because they just agreed with it.

Lizzie Collin
What was the conclusion of this one now?

Richard Snape
Well, I mean, I say the Court of Appeal, in a pretty short judgment, just agreed with the first instance judgment. It's important in many respects, Lizzie, because, you know, options are frequently used and it would have been pretty cataclysmic to say that if there was an option, it's like an agreement for lease and comes outside the 54 Act. Options are very useful for for tenants if landlords want to use sort of non foregrounds against them. most notably grounds F intention to demolish, reconstruct and ground G occupation for your own purposes. And just in case the landlord springs that upon you, it's no bad idea to have a contractual option as an alternative or, you know, in determining how you might ascertain the rent. And incidentally, as we mentioned not so long ago, the English Devolution and Community Involvement Act, which isn't enforced yet and we don't know when, If any options are granted with rent review as of March the 17th, 2026, once the act comes into force, the rent review will be upward and downward. So that's going to affect people's decision as to whether go through a 54 app renewal or go through the option to renew. It's quite important and you can see why the Court of Appeal sort of heard the case very rapidly. I'm amazed it's not been discussed beforehand since 1954 really, section 28 of them. barely being discussed. And that's it Lizzie.

Lizzie Collin
Thank you very much Richard.