Louise Clark and Susannah Markandya answer questions on break clauses
Question
I am a tenant of commercial premises. My lease permits me to terminate on 23 June 2014 on six months’ notice and stipulates the form of notice. There was an inter-company transfer of the property in October 2013. I sent notice of termination to my original landlord, who pointed out the error, and I then sent it by e-mail to the current landlord’s agents, who have confirmed acceptance of it. I have also discovered that the notice is not in precisely the form required under the terms of the lease. Can I insist on terminating my lease on 23 June 2014?
Answer
A notice served on the former landlord will be invalid, but acceptance by the current landlord’s agents may save it. However, failure to comply with lease requirements for the notice to be in a particular form will render it invalid.
Explanation
Careful consideration of the provisions of the break clause and of the requirements for service of the notice will be required. The court has adopted a two-stage process to analyse these issues: it will look first at the requirements of the lease clauses – a matter of construction – and secondly, as to whether those requirements have been satisfied.
Generally, a notice served on the wrong party will be invalid. In Standard Life Investments Property Holdings Ltd v W&J Linney Ltd [2010] EWHC 480 (Ch); [2010] PLSCS 248 the landlord granted an overriding lease for a term longer than the tenant’s lease. The court decided that a notice served on the original landlord and not the landlord under the overriding lease was invalid. However, in MW Trustees Ltd v Telular Corporation [2011] EWHC 104 (Ch); [2011] PLSCS 46, which is on very similar facts to your situation, the current landlord’s agents’ acceptance of the notice on behalf of the current landlord gave rise to an estoppel preventing the landlord from challenging the validity of the notice even though it did not comply with the service provisions in the lease. Consequently, a careful review of the wording of the agents’ e-mail will be necessary to determine whether an estoppel can be established.
Where a lease stipulates the form of break notice to be given, failure to comply with those requirements – however trivial – will mean that the notice is invalid even if the intention of the notice is clear. In Siemens Hearing Instruments Ltd v Friends Life Ltd [2014] EWCA Civ 382; [2014] PLSCS 114 the lease required that a break notice was expressed to be given in accordance with section 24(2) of the Landlord and Tenant Act 1954. The tenant’s failure to ensure that the notice was so expressed rendered it invalid. It is only where the lease does not contain specific requirements as to the form of a notice that the court will consider whether or not a reasonable recipient with the relevant factual and contextual background could have been misled by an error in the notice (Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1996] 1 EGLR 69).
Question
I am a tenant of retail premises and I want to exercise my right to end my lease. The rent under the lease is payable in advance on the usual quarter days. The break clause allows me to terminate the lease on 24 January 2015 provided that I give at least six months’ notice and provided that at that date there are no arrears of rent and I give vacant possession. I must also pay to the landlord by the break date a sum equal to one-half of the annual rent. Do I have to pay the full quarter’s rent due on 25 December 2014 or only the proportionate part of the rent to 24 January 2015?
Answer
Because the break clause in your lease is subject to conditions that will only be satisfied after 25 December 2014 you will have to pay the full quarter’s rent due on that date before the lease will end pursuant to the break clause, unless the lease otherwise provides.
Explanation
Conditions to the operation of a break clause must be strictly complied with. So, as it is a precondition to the operation of the break clause that there are no arrears of rent, you will need to consider the definition of “rent” in the lease – it often includes not only the annual rent, but also service charges, insurance, VAT and possibly also any interest on payments for which you may be liable – and ensure that these are all paid by 24 January 2015. The break premium of half of the annual rent must also be paid by that date. You will need to remove all fixtures, fittings and any other goods from the premises by 24 January 2015 in order to satisfy the requirement to deliver up vacant possession.
Unless the lease provides for you to apportion the rent from 25 December 2014 to the break date, you will need to pay the full quarter’s rent due on 25 December 2014 in order to comply with the precondition in relation to payment of rent. You will not be able to recover from the landlord the rent that relates to the period after the break date of 24 January 2015 once the lease has terminated.
In Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2014] EWCA Civ 603; [2014] PLSCS 150, delivered on 14 May 2014, the Court of Appeal confirmed that this is the current legal position. Here, the lease contained a break clause that allowed the tenant to determine the lease on 24 January 2012 if certain conditions were satisfied, including a requirement that the tenant paid a sum equivalent to one year’s rent on or before the break date. At first instance, the tenant succeeded in arguing that once the lease had terminated in accordance with the break clause there was an implied term obliging the landlord to repay that part of the quarter’s rent due on 25 December 2011 which related to the period after the break date. However, the Court of Appeal allowed the landlord’s appeal and decided that the test for such an implied term – ie that the lease, read as a whole against the relevant background, would reasonably be understood to include such a term – had not been met.
Louise Clark is a partner with Charles Russell LLP and Susannah Markandya is a barrister at Enterprise Chambers
E-mail questions to egq&a@enterprisechambers.com and egq&a@charlesrussell.co.uk
