MR CHARLES HOLLANDER QC (SITTING AS A DEPUTY JUDGE):
1. By a lease dated 22 July 2005 (“the Lease”) the Defendant (“RBS”) demised to the Claimant (“THL”) commercial premises on parts of two floors at Beaumont House, Kensington Village, London W14 (“the Property”) for a term of 10 years from 4 July 2005 but subject to a break clause permitting THL to terminate the Lease on 3 July 2010 after five years upon giving not less than nine months’ prior notice to RBS. The issue which arises in this short trial is whether the break clause has been validly exercised.
2. THL is the tenant of the property. RBS is the owner of the whole of Beaumont House (“the Building”) on a long lease. SEPUT is one of the largest unit trusts in the
3. Schroder Property Investment Management Ltd (“SPRIM”) is the property manager of SEPUT. SPRIM acts as property manager of the properties in the SEPUT portfolio. SPRIM has had responsibility for the management of the Property since before the date when the Lease was granted.
4. The Lease is subject to a tenant’s break clause at Paragraph 1 of Part 2 of Schedule 8 to the Lease as follows:
“Break Clause
(a) The Tenant may terminate the lease on 3rd July 2010 (the Termination Date) by giving to the Landlord not less than nine months’ prior written notice subject to the Tenant:
(i) substantially complying with all its obligations in this Lease down to the Termination Date;
(ii) giving up vacant possession of the Property by the Termination Date; and
(iii) payment of all rent and other sums due under this Lease on the Termination Date. In such case the Term will cease on the Termination Date and no party will have any further rights or obligations under this Lease, but this will not affect any rights or remedies which may have accrued at the Termination Date to any party against any other party in respect of any prior breach of any of the covenants and conditions contained in this lease.”
5. Clause 14 of the Lease “NOTICES” provides as follows:
“14.1 Notices
Any notice or other document served under this Lease may be served in any way in which a notice required or authorised to be served under section 196 of the Law of Property Act 1925 may be served.
14.2 SEPUT Trustee
During such period as the reversion to this Lease is vested in the trustee of Schroder Exempt Property Unit Trust no notice will be deemed to be validly served on the Landlord unless a copy of the notice is also served on Schroder Property Investment Management Limited, 31 Gresham Street, London EC2V 7QA or such other address as the Landlord notifies to the Tenant.”
6. It is not suggested by THL that they sent a copy of the notice served on RBS to SPRIM until, at the earliest, 19 November 2009. As the last day for exercise of the break clause was 3 October 2009, RBS contends that the purported exercise of the break clause was ineffective.
Evidence
7. The evidence before me consisted of a witness statement from Mr Meredith, SPRIM’s property manager. Mr Meredith was cross-examined on his evidence.
8. Mr Meredith’s evidence was that he became aware only on about 19 November 2009 that it was being suggested a break notice had been served on RBS. The relevant RBS office was in
9. I accept Mr Meredith’s evidence. It follows that actual service on RBS took place on 14 September 2009 but no service took place on SPRIM. It was not suggested THL ever sent a copy of the break notice to SPRIM prior to 19 November. A formal copy was sent on 3 December 2009.
10. By this action, THL seek declarations to the effect that the break notice was effective. RBS seek declarations that it was not. The point is a short point of construction. It is a highly technical point, as the defect, if there is one, has caused no prejudice. However, that does not obviate the need to construe the relevant provisions of the Lease in the events which occurred.
Application for leave to amend
11. It became apparent that the purpose of subjecting Mr Meredith to cross-examination was to elicit answers from him which would enable THL to seek leave to amend their pleaded case to plead that there had after all been proper service on SPRIM, because it was to be inferred that RBS had in fact passed on a copy of the notice served on them to SPRIM. A pre-prepared draft amended pleading was provided in such terms to me at the end of Mr Meredith’s evidence. I refused leave to amend at the end of argument and indicated I would give my reasons in this judgment. My reasons are as follows;
(a) the application was hopeless. Leaving aside the question of whether Clause 14.2 is complied with if RBS pass a copy of their notice to SPRIM, which may be doubtful, Mr Meredith’s evidence was precisely to the contrary effect and there is no other evidence before me.
(b) as nothing in Mr Meredith’s evidence assisted THL, the application could have been made at any time over the previous months. There was no reason to wait until the conclusion of evidence.
(c) this trial was expedited by the master, because the termination date if the break option has been exercised is 3 July 2010. Although Mr Seitler suggested in Reply that the hearing would continue either way today, given that there were complaints about lack of disclosure, it seemed to me far from clear that would be the case. Any risk of adjournment would be unfair to RBS.
Submissions of the parties
12. THL submitted as follows:
(a) this was a lease drafted and put forward by the Landlord and should be construed contra proferentem.
(b) Clause 14.2 was only concerned with deemed service, which would occur pursuant to the provisions of Clause 14.1 or otherwise by effect of law. In the present case actual service took place, so Clause 14.2 was immaterial.
(c) unlike time for service of the notice on the Landlord, no time was specified for service on SPRIM. It followed that so long as the notice was timeously served on the Landlord, and subsequently served on SPRIM, the notice was effectively served, subject only either to time being made of the essence or service on SPRIM being effected within a reasonable time, so that SPRIM could be aware in good time that the tenant was moving out. Service was effected on SEPUT within a reasonable time.
13. RBS submitted that no service on the Landlord was good service, as a result of Clause 14.2, unless service was effected on SPRIM. It followed that unless SPRIM was served by 3 October 2009, there was never timeous service on the Landlord.
Discussion
14. It was common ground before me that time was of the essence in relation to compliance with the break clause: see United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904. Thus the break clause could not be exercised unless notice was properly served no later than 3 October 2009.
15. The commercial purpose of Clause 14.2 is to ensure that a notice does not, as Counsel for RBS put it, gather dust in the landlord’s offices but comes to the attention of the person with the actual responsibility for the management of the Property. RBS held the reversionary interest in the Lease as trustee for SEPUT. SEPUT has entrusted responsibility for the management of the Property to SPRIM.
16. Clause 14.2 is not drafted as an obligation breach of which sounds in damages. The words “no notice will be deemed to be validly served unless” makes it clear that the requirement must be complied with for the notice to be effective. The words on their face provide that a notice served on the landlord is not to be treated as an effective notice unless a copy of the notice is also served on SPRIM. The notice does not have to be served on SPRIM simultaneously. But on 3 October, the last date for service, the question is whether notice has been validly served. At that date, no notice has been validly served because no notice has been served on SPRIM as at that date.
17. I am prepared to accept that this provision has to be construed contra proferentem in THL’s favour, as it is a clause which operates only in favour of RBS, and RBS drafted the lease. However, in my view its meaning is clear.
18. THL’s primary case was that the use of the word “deemed” in Clause 14.2 picked up the use of the word deemed to refer to something that has not occurred in fact. The word “deemed” is used in s196(4) of the Law of Property Act 1925 (referred to and incorporated by Clause 14.1). Thus Clause 14.2 only prevents service on the landlord from constituting good service where the service relied on is deemed rather than actual. There was a commercial purpose in such a construction because the need for service on SPRIM was most important where service on RBS was deemed rather than actual.
19. I do not consider there is anything surprising in the use of the word “deemed” in Clause 14.2. Clause 14.2 proceeds on the assumption that the landlord has been validly served. However, that valid service on the landlord shall not be treated as valid service of the break option unless SPRIM has also been served. In other words, what has in fact occurred (service on the landlord) shall not be treated as service on the landlord unless SPRIM has been served as well. “Deemed” means “treated”.
20. THL’s distinction between actual and deemed service would, if correct, have some curious and unexpected consequences. In the present case, it was initially unclear to RBS whether there had been actual service on the landlord. However, it became apparent that there had been, at least, deemed service under s196(4). On THL’s construction this would make all the difference. In most cases there will both be actual and deemed service. In many cases the person serving the notice will not know, at least for some time, whether service effected has been actual, deemed, or both. On occasion it may be fortuitous whether actual or deemed service can be relied upon. Why should it affect the validity of the purported service whether service has actually taken place (under s196(3)) or is deemed service (under s196(4))? It seems to me that THL’s argument on “deemed” service drives the words of Clause 14.2 to a place where they do not naturally or sensibly go.
21. THL submit that there is no express reference to time for service on SPRIM being of the essence. So time is not of the essence, runs the argument. But the logical consequence of that would seem to be that so long as SPRIM were notified the afternoon before the Termination Date, the notice was effective, which would defeat the commercial purpose of the clause. Recognising this problem, and in order to avoid this consequence, THL contend that, unless time is made of the essence, notice must be given within a reasonable time.
22. There is nothing in the clause that would support the implication of this unnecessary implied term. The clause works perfectly well without it. The parties have already in the terms of the Lease specified the time limit for service of the break option-nine months’ notice. Implying a reasonable time for service on SPRIM has two particular problems. Firstly, Clause 14.2 is not about time at all; the break clause itself deals with that. Secondly, in circumstances where the parties have already agreed a time for service of the break notice, the effect of implying a term here would be to impose a separate time limit different from that agreed by the parties.
23. THL also point out that if Clause 14.2 were treated as a condition of effective exercise of the break clause, it would be surprising to find such a condition other than in the break clause itself. However, in order to comply with a break clause it is always necessary both to comply with the break clause and the prescribed mechanics of giving notice. So this takes the matter no further.
Conclusion
24. In my judgment, THL have failed to comply with the terms of the break clause and it has not validly been exercised. The claim must therefore be dismissed and RBS entitled to a declaration that the break clause option has not been complied with.
