Commercial lease – Break clause – Service of notice – Claimant holding 10-year lease with option to break after five years by serving nine months’ prior notice on defendant landlord – Further provision that notice deemed to be validly served only if copy also served on property management company – Whether exercise of break clause valid notwithstanding late service on property management company – Claim dismissed
The defendant held a long leasehold interest in a building in Kensington Village, London W14, as trustee for a unit trust. It let parts of two floors in the building to the claimant for a term of 10 years from July 2005. A break clause permitted the claimant to terminate the lease after five years, in July 2010, on giving the landlord not less than nine months’ prior notice. Clause 14.1 provided that such a notice could be served in any way required or authorised under section 196 of the Law of Property Act 1925. Clause 14.2 further specified that no notice would “be deemed to be validly served” unless a copy was also served on a further company, SPRIM, which acted as a property manager for all the properties in the unit trust’s portfolio.
The time for exercising the break clause expired in October 2009. In September 2009, the claimant served notice to break on the defendant, at its relevant office in Scotland. However, no notice was served on SPRIM until November. The defendant maintained that the break clause had not been validly exercised since the claimant had not complied with clause 14.2. The claimant brought proceedings to establish its right to break the lease. It contended that: (i) the landlord had drafted and put forward the lease, which should be construed contra proferentem; (ii) clause 14.2 was concerned only with deemed service and was immaterial where, as here, actual service had taken place; and (iii) no time was specified for service on SPRIM, such that timely service on the landlord, with service on SPRIM within a reasonable time thereafter, would suffice unless time were made of the essence.
Time was of the essence in respect of compliance with the break clause, such that it could not be exercised unless notice was properly served no later than October 2009: United Scientific Holdings Ltd v Burnley Borough Council [1977] 2 EGLR 61; (1977) 243 EG 43 and 127 applied. The commercial purpose of clause 14.2 was to ensure that a notice did not “gather dust” in the landlord’s offices but came to the attention of the party that managed the property, namely SPRIM. Clause 14.2 made it clear that its requirements had to be complied with in order for the notice to be effective. On its face, it provided that a notice served on the landlord would not be treated as effective unless a copy was also served on SPRIM. The date for determining whether an effective notice had been served fell in October 2009; so service would be valid only if a copy of the notice had been served on SPRIM by that date.
Since the meaning of the clause was clear, it made no difference to construe it contra proferentem. The use of the word “deemed” in clause 14.2 did not mean that it applied only where no actual service on the landlord had taken place. On the contrary, clause 14.2 proceeded on the assumption that the landlord had been validly served but that, none the less, valid service would not be “deemed” unless SPRIM had also been served. The claimant’s argument on deemed service drove the words of clause 14.2 to a place where they did not naturally or sensibly go.
Clause 14.2 did not support the implication of a term that, unless time were made of the essence, notice had to be given within a reasonable time. The clause worked well without it. Clause 14.2 did not deal with time. The break clause itself dealt with that matter. In circumstances where the parties had already agreed a time for serving the break notice, implying a term into clause 14.2 would impose a separate time limit that differed from that agreed by the parties.
Thus, the claimant had failed to comply with the terms of the break clause. The clause had not been validly exercised and the defendant was entitled to a declaration to that effect.
Jonathan Seitler QC and Rupert Reed (instructed by Hammonds LLP) appeared for the claimant; Edwin Johnson QC (instructed by Allen & Overy LLP) appeared for the defendant.
Sally Dobson, barrister
