In the current economic climate, the exercise of a break clause could make the world of difference to parties to a lease. Unfortunately for tenants, it is all too easy for things to go wrong. The litigation in Orchard (Developments) Holdings plc v Reuters Ltd [2009] EWCA Civ 6; [2009] PLSCS 13 demonstrates the importance of complying with any requirements for the service of notices laid down in a tenant’s lease.
The tenant’s break clause was exercisable before the end of July 2005. The tenant served notices by hand and by fax on 29 July and 30 July 2005 respectively. The process server had served the break notice at the wrong address. Consequently, the hand-delivered notice was ineffective. As a result, the tenant was forced to rely upon the service by fax. Unfortunately, the tenant’s lease stipulated that service by fax was valid only if the landlord acknowledged receipt. The landlord resolutely refused to acknowledge service, and did so only after the tenant had vacated the property and the break date had passed.
The tenant argued that the landlord’s belated acknowledgement of service retrospectively validated its break notice, even though the break date had passed. The Court of Appeal disagreed. It ruled that this would be a recipe for disastrous uncertainty and would fly in the face of the provisions in the tenant’s lease. At the break date, the landlord had a continuing right to rent. If the belated acknowledgment could validate the tenant’s fax, it would retrospectively destroy the landlord’s right to rent in the period before the acknowledgement was given.
Consequently, the tenant’s lease would continue until the next break date (provided, of course, that the lease is properly terminated next time). The decision turned on the meaning of the provisions in the tenant’s lease. None the less, it serves to remind us that, although break options are there for tenants to operate, they must be operated correctly and on time.
When exercising break rights, it is important to diarise ahead, and to check and comply with any preconditions, as well as any requirements regarding the form of notice required and the manner in which notices must be served. Where time is limited, tenants would be well advised to serve notices on all interested parties, and in as many ways as possible – by hand, post and electronically.
Tenants should also try to ensure that the landlord confirms receipt of their break notice before the deadline for service expires. However, it is important to remember that, in the absence of provisions to the contrary, landlords are not obliged to give or respond to a request for an acknowledgment within any period of time or, indeed, at all. Where letters of acknowledgement are received, they should be carefully checked for any suggestion that the landlord reserves the right to treat a notice as invalid. If in doubt, tenants would be well advised to re-serve their notices before the deadline for service expires.
Allyson Colby is a property law consultant
