The inclusion of a break clause in a lease allows the landlord or tenant, or both parties, to change their mind during the lease term and bring the lease to a premature end. This is very useful where, for example, the landlord has a long-term plan to redevelop the property and no clear idea of when that plan may come to fruition.
The successful exercise of a break clause is fraught with difficulty, as all the conditions prescribed in the break clause – including timing, service and compliance with lease covenants – must be strictly met. There are numerous authorities (such as Capitol Park Leeds plc v Global Radio Services Ltd [2021] EWCA Civ 995; [2021] EGLR 36) relating to the service of a valid break notice.
The problem
The question we are seeking to address here, though, is: can a party change its mind after service of a break notice and withdraw it? So far as the authors of this article are aware, there are no reported cases on the withdrawal of a break notice.
The notice to quit authorities
While there are no authorities on withdrawal of break notices served in relation to fixed-term leases, the courts have considered withdrawal of notices to quit served to terminate periodic tenancies:
1. In May v Borup [1951] 1 KB 830, Lawrence J said: “A tenant who has given a good notice to quit cannot subsequently cancel it without the consent of the landlord. If the tenant desires to continue his tenancy after giving notice it is a matter for negotiation with the landlord, who can accept or reject the tenant’s proposals as he pleases.” Lawrence J’s view was that, while a tenant could not unilaterally withdraw a notice to quit, it was open to the landlord and tenant to agree that the tenancy should continue notwithstanding service of the notice to quit.
2. In Freeman v Evans [1922] 1 Ch 36, the Court of Appeal held that a notice to quit converted a year-to-year tenancy into a tenancy which was to end on a fixed date and that if, by agreement, the notice to quit was withdrawn then another, altogether new periodic tenancy would arise replacing the tenancy ending on a fixed date.
3. The conclusion reached in Freeman v Evans was criticised in Lower v Sorrell [1963] 1 QB 959, where Donovan LJ said: “A different view, however, is, I think, open. Any tenancy from year to year possesses the inherent characteristic that by a valid notice to quit it may be determined at the end of some year of the tenancy; so that its full description is really a tenancy from year to year and until the date when it is validly determined. When the notice is given, the inherent characteristic becomes an actual feature of the tenancy. But no new tenancy comes into being. It is simply the old one with its ending fixed. If by agreement this date is cancelled, again no new tenancy is created. The life of the old one is simply prolonged, and it continues once more with its inherent quality of determination by a valid notice. I respectfully think that this more nearly represents the reality of the matter, and where it is what the parties intend shall happen, I can see no reason for imposing upon the parties the notion that they have agreed to a completely new tenancy.” However, given that Freeman was also a Court of Appeal decision, the Court of Appeal in Lower felt compelled to follow it.
Do the notice to quit authorities apply to break notices?
How might the reasoning in these authorities apply in the context of a break notice? We consider it likely that a court would follow the reasoning in May and conclude that a party which has served a break notice cannot unilaterally withdraw it. Following service of a valid break notice by a landlord, a tenant may start looking for alternative premises to rent and might enter into an agreement for lease of a new premises to allow them to move into the same at or around the break date. Allowing a party to unilaterally withdraw a break notice would cause a myriad of difficulties, including exposing the tenant to the risk of double rental liability.
However, where the landlord and tenant agree that the break notice is to be withdrawn, the position is different. Freeman concerned a notice to quit and not a break notice. A court would not be obliged to follow the Court of Appeal’s reasoning when determining whether a break notice can be withdrawn by agreement. It would be open to a court to adopt the alternative analysis set out in Lower.
This analysis is simpler and may avoid difficult consequences which might otherwise arise if the withdrawal of a break notice by agreement gives rise to a new lease. As an example, consider a lease of a shop for a fixed term of 20 years which excludes sections 24 to 28 of the Landlord and Tenant Act 1954 and contains a mutual break clause. The landlord exercises the break clause so that the lease will determine on the second anniversary. Subsequently, the parties orally agree that the break notice will not take effect and the lease will “continue as usual”.
Adopting the analysis in Freeman gives rise to a number of difficulties. First, it is not possible to grant a lease for a period of more than three years orally (section 54 of the Law of Property Act 1925). So on no analysis is the result the grant of a new 18-year lease. If the tenant remains in occupation and that rent is paid and accepted, it might be possible to argue that, following the determination of the existing tenancy, the tenant occupies as a periodic tenant. This gives rise to further problems as the tenancy would then benefit from the protection of the 1954 Act, contrary to the intentions of the parties. Practitioners are referred to Break Clauses (third edition, 2001), by Mark Warwick KC and Nicholas Trompeter KC, at 13.62 for further problems that can arise if the analysis in Freeman is followed.
In conclusion
In our view, as suggested by Donovan LJ in Lower, the result that the original tenancy continues better represents the reality of the situation. For now, however, given that there are no reported authorities on withdrawal of break notices by agreement, proceed with caution.
In circumstances where a valid break notice has been served and the parties then agree that it should be withdrawn, the legal outcome is not certain unless some further steps are taken. It is likely that the only method to achieve a certain outcome is for the tenant to surrender the lease and the landlord to simultaneously grant a new one.
Julia Petrenko is a barrister at Falcon Chambers and Andrea Nicholls is a senior associate at Penningtons Manches Cooper LLP
