Validity of a Non-Compliant Break Notice - Good News for Landlords

Validity of a Non-Compliant Break Notice - Good News for Landlords

Summary

In the recent case Friends Life Limited and Siemens Hearing Instruments Limited [2014] the Court of Appeal has held that the requirements for the exercise of a break clause in a lease must be complied with to the letter. If they are not, the purported exercise will be invalid: substantial compliance is not enough and even the most trivial non-compliance will mean that it is ineffective.

The facts

The facts of the case were as follows. In September 2012, the solicitors of a tenant under a 25-year lease of commercial premises served notice on the landlord to exercise the tenant’s   right to break and terminate the lease. The break clause set out a number of pre-conditions that had to be satisfied. Many of these were standard requirements, for example that vacant possession of the premises had to be given on the termination date and that all rent and other sums due under the lease had to have been paid in full. There were also requirements as to the notice itself. The tenant had to give the landlord not more than 12 months’ and not less than six months’ written notice and that notice “must be expressed to be given under s.24 (2) of the Landlord and Tenant Act 1954”. The tenant’s notice was compliant with all the requirements save that it was not expressed to be given under s.24 (2). Did this matter?

The decision

The Court of Appeal, reversing the decision of the High Court, held that it did. This was despite the fact that the failure to use the “magic words” made no difference at all in practice. They were designed to avoid a perceived problem that no longer existed and were therefore redundant.

While the decision may seem unduly rigid and harsh on tenants, the logic behind it is clear. An option, such as a break clause, is a unilateral contract. In order to accept the offer contained in that contract, exact compliance with the terms of the offer is necessary. Even trivial non-compliance would preclude the successful exercise of the option. This is illustrated by the frequently quoted example given by the House of Lords in Mannai Investment Co Ltd v Eagle Star Life Assurance Company Limited [1997], that if a break notice is required by the terms of the lease to be served on blue paper, a notice on pink paper will not suffice.

Conclusion

The case is an emphatic and clear reminder of the need to be scrupulous in complying to the letter with the terms of an option such as a break right, both in terms of the conditions to   be satisfied and the form, content and service of the notice purporting to exercise the option. While there may sometimes be room for debate as to whether a provision should be interpreted as mandatory – “must” be followed – as opposed to permissive – “may” be followed – it is surely best not to have to put that to the test.

In his judgment, Lord Justice Lewison summarises the position succinctly:

“The clear moral is: if you want to avoid expensive litigation and the possible loss of a valuable right to break, you must pay close attention to all the requirements of the clause, including the formal requirements, and follow them precisely.”