In the current economic climate, tenants with the benefit of break clauses in leases are more likely to take advantage of them. Unfortunately, however, there is usually plenty of room for error when serving a break notice.
A common mistake, where companies operate in groups, is to serve the break notice in the wrong name or on the wrong company. In Prudential Assurance Company Ltd v Exel UK Ltd [2009] EWHC 1350 (Ch); [2009] PLSCS 200, the High Court was asked to consider a break notice served on behalf of one of two joint tenants. Both companies were part of the same group, but one was dormant. The solicitor that served the notice described itself as the authorised agent of the trading parent (although the break notice included a heading in which both companies were named as tenants under the lease).
A questions arose as to whether the notice was valid since it did not purport to be served on behalf of the dormant company. The judge held that the solicitor was duly authorised to serve the notice on behalf of both companies, because they had each delegated authority to a central property department that instructed solicitors on their behalf. However, that did not suffice to validate the notice.
Notices must be clear and unambiguous. The question is not how the landlord understood the notice, but how a reasonable recipient would have understood it. Such a recipient should not be left in any reasonable doubt about how and when the notice is intended to operate.
A misnomer might, in certain circumstances, be an obvious error that the court can overlook. However, the notice that was served on the landlord would have created real uncertainty in the mind of a reasonable recipient. The statement that the notice was given on behalf of the parent company alone was in clear contrast to the description of both companies as tenants under the lease. As a result, the landlord would have been unsure whether the notice was being served on behalf of the dormant company. Consequently, the notice was invalid and the tenant remained liable under the lease.
Two important practical points arise from this decision. Tenants should check the registers of title (or, where the title is unregistered, the title deeds), and the information held by the Registrar of Companies to establish in which names break notices should be served.
In addition, where instructions to serve break notices are received from third parties, firms would be well advised to verify their authority to act on the instructions received. In a downturn, most landlords actively challenge break notices. However, in a more favourable economic climate, when properties are in demand, the judge warned that firms that serve break notices may find themselves liable in damages to the landlord for breach of warranty of authority if it subsequently transpires that they have not obtained the requisite authority to serve such a notice on behalf of the tenant.
Allyson Colby is a property law consultant
