Open-access content Tuesday 1st October 2013
When serving a break notice, it is vital to comply to requirements set out in the lease agreements. Rebecca Biggin relates a case in which ambiguity was nearly costly.
1 October 2013
Break clauses are regularly a cause of dispute between landlords and tenants.
It often happens that tenants who exercise break options - to free themselves from costly and lengthy rental responsibilities - are faced with landlords who seek to resist or frustrate break attempts, so as to preserve rental income in a difficult market.
Despite the wealth of cases on the subject, which on the whole have favoured landlords, tenants continue to get into difficulty when serving break notices. However, we may be seeing a shift in the attitude of the courts.
In the recent Marks & Spencer case, a tenant was found entitled to a rent refund following the break date, even though the lease did not expressly provide for such.
After this case, the tenant in Siemens Hearing Instruments Limited v Friends Life Limited was able to convince the High Court its break notice was valid, even though it failed to comply with a specific requirement of the break clause in the lease.
- In 1999 the landlord let the commercial premises to the tenant on a 25-year lease. The lease was protected by the Landlord and Tenant Act 1954 (the 1954 Act).
- The lease contained a break option that allowed the tenant to determine the lease on 23 August 2013 by giving notice that "must be expressed to be given under section 24(2) of the 1954 Act".
- l The tenant served a break notice but failed to include any reference to Section 24(2) of the 1954 Act.
- The High Court was asked to consider whether the break notice was valid even though it was not, as the lease required, expressed to be given under Section 24(2) of the 1954 Act.
Both the landlord and tenant agreed that the requirement in the break clause, which stipulated the tenant had to express that the break notice was given pursuant to Section 24(2) of the 1954 Act, was there to avoid the risk that the tenant could determine the tenancy on the break date and while requesting a new tenancy under the 1954 Act. This was a perceived risk at the time the lease was granted in 1997, but resolved by a later court ruling.
The tenant argued that the notice was valid despite the absence of the required wording because the wording was meaningless; there was no such thing as notice under Section 24(2). Therefore, the failure to state the meaningless words should not automatically render the break notice invalid.
The landlord argued that the break notice was clearly invalid. The required wording was not meaningless; its purpose was to give the landlord the means to defeat an application by the tenant for a renewal lease. And, in any event, the requirement was part of the process of exercising the break option and should be construed strictly.
A two-step approach
The Court considered two questions:
1) Did the break notice comply with the requirement in the break clause?
- The omission of the words from the break notice was not the kind of mistake which could be corrected in accordance with the House of Lords decision in Mannai Investments (ie a simple slip or omission which, on the face of the notice, a reasonable person would be aware was a mistake)
- There is no doubt about the meaning of the words "must be expressed to be given under Section 24(2)". Even if they are meaningless, in the sense that there is no such thing as notice under Section 24(2), that is what the break clause requires
- The requirement cannot simply be disregarded, as the tenant claimed. There was no difficulty for the tenant in complying with the requirement.
The court therefore found that the break notice was not compliant with the requirements of the break clause.
2) Does non-compliance automatically render the break notice invalid?
- The court considered that certain requirements are mandatory, such as the requirement for the break notice to be served in accordance with the notice provisions in the lease and the fulfilment of break conditions (ie payment of rent or delivering vacant possession), but other requirements are not mandatory, and this includes the words used in the break notice
- It also found that if a lease does not provided for the consequences of non-compliance with specific requirements in a break clause, it is reasonable to assume that this is deliberate. It is natural to conclude that the draftsman intended that the break notice should, at least in some circumstances, but not necessarily all, survive non-compliance.
The court therefore ruled that the break notice was valid despite its non-compliance with the strict requirements of the break clause in the lease.
A note of caution
There was no suggestion by the court that the tenant in this case had deliberately omitted the specific wording required by the break clause. The break notice was simply poorly drafted and was saved by judicial interpretation, which is never satisfying for landlords or tenants who are looking for certainty when dealing with break notices.
The case has raised a few eyebrows in the legal community and tenants should therefore treat it with extreme caution. Tenants seeking an early release from their tenancy by exercising a break should not leave it to chance. They should comply with all break clause requirements.
If in doubt, seek legal advice before serving the break notice to avoid becoming embroiled in lengthy and expensive litigation in an attempt to save defective break notices.
Rebecca Biggin is an associate in Berwin Leighton Paisner's real estate disputes group