Business tenancy – Notice – Validity – Defendant landlord serving notice on claimant tenant under section 25 of Landlord and Tenant Act 1954 – Notice containing incorrect name of claimant – Whether notice valid – Whether options for duration of proposed new tenancy appropriate – Whether new tenancy subject to break clause – Judgment accordingly
The claimant company was the tenant of 6 Upper Grosvenor Street, London WI. The building comprised a listed end-of-terrace self-contained office building located in Mayfair, close to Grosvenor Square. It comprised a lower ground, and ground to second floors which were used as office accommodation and the third and fourth floors which were to be used as residential accommodation by a director or senior employee of the claimant.
In anticipation of the expiry of the lease, the defendant landlord served a notice on the claimant under section 25 of the Landlord and Tenant Act 1954 purporting to terminate the tenancy and proposing a new 12-year tenancy without break, at an initial rent per annum, subject to four-yearly upward only rent reviews. The person responsible for drafting the notice carelessly entered the name of the claimant incorrectly. An issue arose whether the section 25 notice was valid. The defendant contended that any reasonable recipient of the notice and its covering letter and enclosures would have assumed that the defendant intended to address the letter and its contents (including the section 25 notice) to its actual tenant, rather than the former tenant (or the tenant’s holding company) and thus intended it to be valid. No reasonable person in the position of the claimant could reasonably have misunderstood to whom the notice was really addressed. The claimant’s position was that it believed that the defendant intentionally named the wrong company as the recipient of the section 25 notice and intended it to be invalid for tactical reasons. It was not suggested that the defendant did not know the correct name of its tenant. Other issues arose as to the duration of the new tenancy, whether the new tenancy should be subject to a break clause and the rent payable under the new tenancy.
Held: Judgment was given accordingly.
(1) The court had to adopt an objective approach to the construction of section 25 notices. The question was whether the notice was quite clear to a reasonable tenant reading it and whether it was plain that he could not be misled. Thestandard of reference was that of the reasonable man exercising his common sense in the context and circumstances of the particular case. It was not an absolute clarity or an absolute absence of any possible ambiguity which was desired. One had to consider whether there was a mistake in the information contained in the notice; if there was such a mistake, how, in the light of the mistake, a reasonable person in the position of the recipient would have understood the notice in the circumstances of the particular case; and whether, as a result, the notice would have been understood as conveying the information required by the contractual, statutory or common law provision pursuant to which it was served: Mannai Investment Co Ltdv Eagle Star Life Assurance Co Ltd[1997] AC 749 applied. Morrowv Nadeem[1986] 2 EGLR 73 andCherry Tree Investments Ltdv Landmain Ltd[2012] 2 EGLR 141 followed.
In the present case, the section 25 notice served the purpose of notifying the claimant that the defendant was bringing its tenancy to an end under section 25 of the Act, but was not objecting to a renewed tenancy in principle. It was accompanied by a section 40 notice (for the purposes of a mutual exchange of relevant information), which was only consistent with the defendant requiring access to information from the claimant in order to progress the agreeing of terms for a new tenancy. The notice had the purpose of triggering the section 24 process by means of section 25 and it was served in conjunction with a further notice requiring the provision of information under section 40. It was and could only have been targeted at the claimant, as tenant of the building, however unfavourable the defendant’s proposed terms might have seemed. On the facts, (there being two closely linked and managed companies) a reasonable recipient of the section 25 notice would immediately and clearly have understood the intended addressee of the notice and its effect on the lease of the building.
(2) The claimant sought a five-year term for the new lease; the defendant had offered 12. Neither option was very typical.Section 33 of the Act permitted a maximum of 15 years for the new lease. In all the circumstances, a ten-year term appropriately and reasonably balanced the interests of landlord and tenant and was consistent with several of the examples produced as comparators albeit mainly for the purposes of valuation. In the absence of agreement between the parties, the duration of the new tenancy had to be such as might be determined by the court to be reasonable in all the circumstances. That required it to be reasonable both from the perspective of the landlord, as well as the tenant. On the facts, if in five years’ 
time the claimant wished to relocate it would have little difficulty in assigning its tenancy. Bearing in mind that there was no prohibition against the assignment of the lease of the whole building, it was reasonable to make provision for a new lease of ten years.
(3) There was no rent review clause in the current lease. Section 34(1) of the Act required the court to set a rent at a level which, having regard to the terms of the tenancy, the holding might reasonably be expected to be let in the open market by a willing lessor. Subsection 34(3) also applied to the effect that provision could be made to vary the rent. Whilst common commercial practice was an important factor, it did not play a conclusive part in the section 34(1) process. In this case there was no evidence to suggest that there would not be a willing lessor for a lease with a both upwards and downwards review clause. The appropriate and inherently fair and reasonable rent review clause was an upwards and downwards clause to account for market changes in either direction on the fifthanniversary of the new lease.
(4) The claimant sought the incorporation of a break clause in the new lease to be exercisable if the occupation of the building became intolerable and the claimant was not able to have quiet enjoyment if that adjacent redevelopment works proved unbearable. The question was whether there was a real possibility that that event would occur. A real possibility was a prospect that was more than a fanciful conjecture, so the threshold was not high. On the evidence, the claimant’s fear of intrusion to the extent that it was deprived of its quiet enjoyment was unwarranted and speculative. The insertion of the break clause sought by the claimant was neither reasonable nor appropriate and was not congruent with the terms of the current tenancy. If such a clause were to be included in the new lease, the uncertainty from the defendant’s viewpoint would have a significant upwards impact on the rent valuation.
(5) Under section 34 of the Act, the court had to determine the open market rent of the building on the basis of it being let with vacant possession. None of the “disregards” in section 34(l) were relevant to the experts’ valuations. The approach of the claimant’s expert was too impressionistic; it failed to acknowledge the usefulness of the comparables relied on by the defendant. The opinion of the defendant’s expert was grounded by her reference to a number of comparative lettings. Notwithstanding the adjacent building works, the building remained a prestige option in a highly prestigious location that would attract considerable interest on the open market. The court accepted the defendant expert’s approach and her conclusions as to valuation.
Anthony Tanney (instructed by Foot Anstey LLP) appeared for the claimant; Romie Tager QC (instructed by Memery Crystal LLP) appeared for the defendant.
Eileen O’Grady, barrister
Click here to read transcript: Westminster Ltd v West End Investments (Cowell Group) Ltd
