Commercial lease – Break clause – Agency – Claimant granting underlease to defendant – Break clause permitting tenant to end lease by giving six months’ notice – Such notice given in the name of another company in the defendant’s group – Claimant asserting that notice invalid and underlease continuing – Whether notice valid – Whether given by the tenant as required by underlease – Whether given by party acting as agent for tenant – Claim allowed
The claimant held a lease of a warehouse and distribution facility for a term of 10 years from August 2005 at a rent of £184,000 pa, rising to £191,900 pa in August 2008, and with an upward-only rent review in August 2010. The lease became surplus to the claimant’s requirements and it agreed to grant an underlease to the defendant for the same term less two days, on similar terms as to rent. The underlease, which was granted in January 2008, identified the tenant by reference to the defendant’s company name and the “prescribed clauses” section referred specifically to the defendant’s company registration number. It contained a break clause that enabled the tenant to determine the underlease in October 2009 by giving six months’ prior written notice to the landlord.
In August 2007, following a merger, the defendant became part ES group of companies. In 2008, the claimant received a letter, on the headed notepaper of ES, and with its company registration number given at the bottom, announcing that the defendant was to change its name to ES and providing a new address to which all future invoices were to be sent. In the event, the name change did not take effect; the defendant remaining separate from ES.
In April 2009, the claimant received another letter, again on ES headed paper, purporting to give notice to exercise the break clause. The notice was signed by ES’s account manager “for and on behalf of” that company. The claimant queried whether the underlease had been assigned to ES, and when the defendant confirmed that it had not, the claimant questioned the validity of the notice.
By a claim brought in December 2009, the claimant sought a declaration that the underlease continued and the payment of various sums accordingly. The defendant counter-claimed for a declaration that the break clause had been validly exercised.
Held: The claim was allowed; the counterclaim was dismissed.
(1) The notice to exercise the break clause had not been given by the tenant under the underlease. In determining that matter, the question was not what the reasonable recipient of the notice might think but whether the notice had been given by the tenant or by a third party. A tenant notice was required to fulfil the formal requirements imposed by the underlease. A notice given without the authority of the tenant could not be treated as having been served by the tenant merely because the reasonable recipient would think that it had been so served. The reasonable recipient test was relevant only to the separate issue of whether a notice, if conforming to the formal requirements, was effective to convey the required information: Procter & Gamble Technical Centres Ltd v Brixton Estates plc [2002] EWHC 2835 (Ch); [2003] 2 EGLR 24; [2003] 32 EG 69 applied; Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] 1 EGLR 57; [1997] 24 EG 122; [1997] 25 EG 138 considered. Nor could subsequent ratification by the tenant, acting unilaterally and without the recipient’s participation, save a break notice that had been given by the wrong party as principal so as to turn a notice that was bad when given into one that was good: Divall v Harrison [1992] 2 EGLR 64; [1992] 38 EG 147 applied. A notice given on ES’s headed paper, and stated to be given for and on behalf of ES, should be regarded as having been given by ES. There was no evidence that the defendant had decided to serve the notice. Accordingly, save by some principle of the law of agency, the notice was invalid because it had been given not by the tenant under the underlease but by a third party.
(2) On a proper analysis of the facts, the notice had been given by ES as principal, rather than as agent for the defendant. It had not been alleged that the board of the defendant or anyone acting within it or with its authority had authorised ES’s account manager to serve the notice, and the evidence did not support that finding. The wording of the notice had not been errneous and the account manager had intended the notice to be given for and on behalf of ES. Even if such authorisation had been given, the absence in the notice of any reference to agency would render it invalid unless the circumstances were such that the claimant, as recipient, could act on the notice safely in the knowledge that it would be binding on the defendant as principal. It could not, since the notepaper on which the notice was written made it clear that the party giving the notice was not the original tenant under the underlease and, for all the claimant then knew, the lease could have been assigned to ES.
(3) Only a general agent could serve a valid break notice in its own name without disclosing the fact of the agency on the face of the notice. The defendant could not show that it had created a general agency under which the agent had authority to undertake anything in relation to the subject matter of its principal’s lease, even to the extent of destroying that subject matter without reference to the principal. To infer such an agency, in the absence of express authority creating it, would require clear evidence in support: Lemmerbell Ltd v Britannia LAS Direct Ltd [1998] 3 EGLR 67; [1998] 48 EG 188 and Dun & Bradstreet Software Services (England) Ltd v Provident Mutual Life Assurance Association [1998] 2 EGLR 175 applied. The defendant had advanced no evidence of an express creation of a general agency and there was insufficient evidence from which to infer one. Accordingly, the break notice served by ES was invalid.
Thomas Grant (instructed by Eversheds LLP, of Manchester) appeared for the claimant; Mark Halliwell (instructed by Hammonds LLP, of Manchester) appeared for the defendant.
Sally Dobson, barrister
