A typical break clause will require the tenant to notify the landlord in advance of its intention to terminate the lease prematurely. Such time limits must be strictly observed; a notice served a day late will be invalid. In addition, tenants must comply with conditions imposed by the lease; failure to do so could prove fatal.
Hotgroup plc v Royal Bank of Scotland plc (as trustee of Schroder Exempt Property Unit Trust) [2010] EWHC 1241 (Ch); [2010] PLSCS 153 is a salutary reminder of the importance of reading the entirety of a lease before invoking a break clause.
The break clause stipulated that the tenant must comply with a series of conditions in order to break the lease. These were to: (i) comply with their all its obligations until the lease ended; (ii) provide vacant possession; and (iii) pay all sums due to the landlord before the lease ended.
As a general rule, serving a break notice on the landlord would have sufficed. Unfortunately, however, the lease included additional provisions to ensure that any notices served were brought to the attention of the person responsible for managing the property. They stipulated that notices were not to be treated as having been validly served on the landlord unless a copy of the relevant notice was served on its property manager as well.
The tenant served a break notice on the landlord on 14 September 2009 and, if the notice was effective, the lease should have terminated on 3 July 2010. However, the last day for the exercise of the break clause was 3 October 2009 and the tenant did not copy the notice to the landlord’s property manager until 3 December 2009. The landlord claimed that the break notice was ineffective. The tenant argued that the landlord was taking a highly technical point, and that the landlord had not been prejudiced by the delay.
The tenant drew the judge’s attention to the fact that the lease did not expressly make time of the essence for service of notices on the property manager, and argued that the notice provisions must be interpreted as requiring service on the landlord’s property manager within a reasonable time.
The judge disagreed. He accepted that the notice did not have to be served on the landlord and its property manager simultaneously, but ruled that the tenant was trying to alter the deadline for service imposed by the lease. Consequently, the break notice was invalid because it was not copied to the landlord’s property manager until after the last date for service.
Leases often contain provisions governing the service of notices. These may be permissive (that is, they set out how service may be effected) or prescriptive (that is, they require service to be effected in a particular way). This decision highlights the importance of complying with any mechanics prescribed by the lease, especially in the case of break clauses because, as a matter of law, time is of the essence when exercising an option to determine.
Allyson Colby is a property law consultant
