Yet another case adds to the long list of tragedies where lease break notices have gone wrong, or where there is an argument that they have gone wrong.
It has been clear law for many years that where a notice exercising an option or other unilateral property right is served, the courts will apply very strict tests as to its compliance with the applicable requirements and thus its validity. Even if the formalities are fully satisfied, the notice must still be, “…sufficiently clear and unambiguous to leave a reasonable recipient in no reasonable doubt as to how and when [it is] intended to operate.” (Slade LJ quoted with approval by Lord Steyn in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749).
In Tyco Fire & Integrated Solutions (UK) Limited v Regent Quay Development Company Limited [2016] CSOH 97 the notice was agreed by the parties to have been validly served, so the strict formalities had been complied with. Where the notice came under attack was in respect of what it actually meant. It is a Scottish case, but Mannai is accepted as good authority in Scotland.
Background
The landlord let two commercial units (numbers 3 and 4) to the tenant for a term of ten years expiring on 5 February 2014. In 2011, the lease was varied by minute of variation to:
- add an additional unit (number 1)
- extend the term to 30 August 2021, and
- add a tenant’s break exercisable on at least 6 months’ notice expiring on 31 August 2016.
The tenant served a break notice drafted by lawyers on the landlord in January 2016, more than a month before the last date for doing so. In early March, a few days after the last date for service of a valid break notice, the landlord claimed the notice to be ineffective and the tenant applied to the court to decide the matter.
The landlord’s arguments were that:
-
the notice defined “the Premises” to which the notice related as “Units 3 & 4…”, omitting Unit 1
- the notice defined “the Lease” as the lease originally granted, omitting to include reference to the variation
- the notice was “…to terminate the Lease over the Premises…”
- as there was no provision for breaking the lease only in respect of units 3 & 4, the tenant was apparently attempting to do something it could not, so that the notice was invalid. There was at least real and substantial doubt, applying the test in Mannai, as to how the notice was to be interpreted – the tenant might simply have misunderstood the extent of the break clause.
Decision of the Outer House of the Court of Session
Lord Tyre rejected the landlord’s arguments. The notice referred to the variation and indeed was given expressly under the provision of the minute of variation which contained the break provisions. The 2004 lease did not cease to be the lease simply because it had been varied. The landlord’s interpretation was sufficiently far-fetched as to be disregarded as a reasonable interpretation, or one creating confusion in the mind of the reasonable recipient. There was no ambiguity in this respect at all.
The notice having been expressly given under the power conferred by the minute of variation, the reasonable recipient would not be misled into interpreting it as attempting to exercise a power not conferred upon the tenant, that is to break the lease only so far as Units 3 & 4 were concerned.
Lord Tyre said “The operative element of the notice is sufficiently clear and unambiguous to avoid any such perplexity, and the fact that the ingenuity of lawyers can suggest theoretical ambiguities is not to the point.”
Practical considerations
This was a case of over-elaborate drafting. It was unnecessary for the premises to be referred to in the operative words of the notice. Neither was it necessary to provide separate definitions of the lease and the minute of variation. Notices should be kept as short, clear and simple as possible.
The incentive for landlords to try to defeat the operation of tenant breaks and postpone - here by five years - the need to find another tenant evidently remains strong. It is therefore vital for tenants exercising break rights to take every possible precaution to eliminate any cause for dispute.
Whether or not the landlord was ultimately likely to succeed, the argument alone will have been sufficient to cause the tenant unwelcome uncertainty and expense which, in other circumstances, may have led the tenant to make costly concessions to the landlord in exchange for a surrender of the lease, rather than engage in litigation.
Autumn 2016
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