Drawing up a break notice has become a little like walking a tightrope: one small slip and you’re in trouble! A recipient who would rather keep the lease alive will pick over the notice looking for any possible error that might invalidate it. Has the notice been served by, and is it addressed to, the right person? Was it correctly served? Is the timing right? Is the form and content of the notice correct and have all other conditions been met?
Siemens Hearing Instruments Ltd v Friends Life Ltd [2014] EWCA Civ 382; [2014] PLSCS 108 concerned a break notice that was served to terminate a lease with ten years left to run. The lease included a requirement that any break notice “must be expressed to be given under section 24(2) of the Landlord and Tenant Act 1954”. The formula, which has now become meaningless, was once used to try to prevent tenants from exercising break rights in a falling market and then requesting new business tenancies at lower rents. (This fell into disuse once the court confirmed that tenants could not do this: Garston v Scottish Widows Fund [1996] 1 EGLR 113.)
For reasons that are not clear, the tenant failed to use the formula in its break notice. The landlord pounced and the High Court subsequently startled many of us by refusing to “adhere slavishly to the supposed rule of construction that makes everything about the process of exercising an option mandatory”. However, the Court of Appeal has overturned the decision.
Its judgment reminds us that the courts have analysed options as “if contracts”, which must be accepted in exact compliance with their terms. The court must ask: “What have the parties agreed to do?”, not “What are the consequences of their having failed to do what they have agreed to do?”, which was what the tenant had focused upon. Such an inquiry is relevant only during the course of the subsequent contractual relationship created by the exercise of the option.
What of the fact that an option to terminate a lease differs from an option to renew, because the parties are not being brought into any new contractual relationship? The court gave short shrift to the suggestion that the rules should be any different and ruled that the principles applicable to compliance with conditions upon which an option
depends apply equally to both.
Therefore, to quote Lord Hoffmann in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 249; [1997] 1 EGLR 57, if a break clause stipulates that a break notice must be given on blue paper, a notice served on pink paper will not be effective to terminate the lease.
The tenant’s lease stipulated that the tenant “must” include the prescribed formula in any break notice. “Must” is an emphatic and imperative word. Therefore, harsh though it was, it was impossible for the court to ignore the fact that the magic words were missing.
To sum up, in the words of Lord Justice Lewison: “If you want to avoid expensive litigation, and the possible loss of a valuable right to break, you must pay close attention to all the requirements of the clause… and follow them precisely.”
Allyson Colby is a property law consultant
