Following the application of the reasonable recipient test, the High Court rules that a tenant’s wrongly worded break clause is invalid
● The Mannai approach will not eliminate the effect of all mistakes
● An error that could mislead a reasonable recipient will invalidate a notice
The belief of the majority of the House of Lords in Mannai Investment Co Ltd v Eagle Star Insurance Co Ltd [1997] AC 749, that their decision would not increase litigation on the validity of notices, has proved misplaced. The reasonable recipient test may be fairer than the stricter test that it replaced, but, in a commercial context, certainty is usually preferable to a lawsuit. One example of this has recently come before the courts and illustrates the problems posed to both professional advisers and the judiciary when navigating the jungle of lease notices.
Problems in Procter & Gamble Technical Centres Ltd v Brixton Estates plc [2003] EWHC 2835 (Ch); [2003] PLSCS 47 stemmed from a restructuring of the Procter & Gamble UK operation. In 1998, a lease of Egham premises, vested in Procter & Gamble Health and Beauty Care Ltd (HBC), was assigned to Procter & Gamble Health and Beauty Care Europe Ltd, and then to Procter & Gamble Technical Centres Ltd (TC). The lease contained a tenant’s break clause.
Strategic decisions made by the Cincinnati-based parent company, meant that certain properties, including Egham, were to be disposed of. EMEA Real Estate, which managed all of Procter & Gamble’s European properties, therefore instructed its solicitor (via one of its property managers, who was employed by TC) to operate the break clause in the lease of the Egham property. The manager did not know that the lease was, by that time, vested in TC.
The solicitor consulted the documents that had been sent to her (the original lease and a rent review memorandum dated August 2000) and realised that something was amiss since the memorandum named the landlord as Brixton Nominee Roads and the tenant as HBC. Both names were in fact wrong but, after investigating further, the solicitor considered that only the landlord’s name was incorrect. The break notice was thus served upon the defendant landlord but stated that it was being served “on behalf of HBC your tenant of the above premises”.
The landlord’s challenge to the notice was threefold, namely that: first, the tenant (TC) did not wish to determine the lease; second, the notice was not served by TC; and third, the notice was not, in any event, valid because it was served in the name of HBC.
Following Mannai, the judge found two aspects to the validity of notices. First are the formal requirements laid down by the lease itself, such as time limits and pre-conditions; these must be complied with and failure to do so will invalidate the notice. Other contents of the notice, ie those not specifically prescribed by the lease, are not so strictly assessed. They must clearly communicate the required message, this is tested by deciding whether a reasonable recipient would have been misled.
The requirement that the tenant must desire to determine the lease and be the one to give the notice had to be complied with. The judge found that this was the case here.
While recognising that companies in the same group should not automatically be treated as one and the same, he was decided that, although the decision to determine TC’s lease was taken elsewhere, there was a genuine delegation of this decision-making to the parent company and EMEA.
He also concluded that the notice was served with the authority of TC. Despite the letter to the solicitor having been written by an employee of TC on its headed paper, he thought that the solicitor was instructed by EMEA and acting on the behalf of the tenant, whoever that was. Putting the wrong name on the notice did not change the identity of the solicitor’s principal; she had merely got the name of her principal wrong.
The question of the effect of wrongly naming the tenant turned upon the reasonable recipient test, which Neuberger J found to have rendered the notice invalid. Considering two earlier cases on this point Lemmerbell Ltd v Britannia LAS Direct Ltd [1998] 48 EG 188 and Havant International Holdings Ltd v Lionsgate (H) Investment Ltd [2000] L&TR 297 he concluded that the present case was indistinguishable from Lemmerbell. In Havant where the notice had been held to be valid the break could be operated only by the original tenant while the lease was vested in it. Mistakenly serving the notice in the name of a company in which the lease was not vested could not have misled a reasonable recipient; the named person could not end the lease and there must, therefore, have been a mistake.
Lemmerbell and the instant case were different. in both, the right to break could be exercised by an assignee. Assignment without the knowledge of the landlord is legally effective, which means that a landlord cannot be sure, when receiving a break notice in the wrong name, that an assignment has not taken place without its knowledge and that the party named is not the person trying to exercise the break. Furthermore, the context of Procter & Gamble would not have persuaded a reasonable recipient that the name of the tenant was necessarily wrong. There had previously been a series of complex dealings with the lease; further dealings of which the landlord had never been notified might have taken place (ie an assignment back to the original tenant, HBC). And the fact that the solicitor had been astute enough to spot that the rent review memorandum had wrongly identified the landlord, could only have reinforced the recipient’s view that she must have correctly identified the tenant.
Sandi Murdoch, senior lecturer in law, Reading University
