In the current recessionary climate, break options have become a welcome safety net for tenants who find their once profitable businesses facing problems. A well-drawn lease will contain pre-conditions (such as at least six months written notice to expire on an anniversary of the start date) which must be satisfied before the break can be exercised. When the break notice is received, the landlord will check it for any defects to ensure that it is in accordance with the relevant clause in the lease.
A relatively minor mistake may not invalidate the notice but may cause such confusion to the recipient that a court may reject it as not fit for purpose.
In the recent 2009 case of Prudential Assurance Company Ltd v Exel UK Ltd and Tibbett & Britten Group Ltd, two companies had been granted a lease together - Tibbett & Britten Ltd and Tibbett & Britten Consumer Group Ltd. Tibbett & Britten Ltd changed its name to Exel Ltd. A break notice was served on the landlords by solicitors stating that they were acting for Exel Ltd. The notice correctly listed the original parties to the lease but made no mention of Tibbett & Britten Consumer Group Ltd.
Not surprisingly, the landlord claimed that the notice was invalid as it had not been given on behalf of both tenant companies even though the solicitor had previously informed the landlord that they acted for both companies.
Since Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd (1997), the standard to be applied is how a reasonable person receiving the notice, in the light of his background knowledge, would have understood it. Even a mistake as to the identity of the person giving it will not necessarily make it invalid provided that its meaning is clear and unambiguous. Essentially, each case will turn on its own facts.
A further relevant factor in this case was that Exel was not an original tenant as the landlord had never been asked to agree to an assignment following the change of name of T&B Ltd. The other tenant, T&BCG Ltd, was not mentioned in the break notice and was a dormant company, still in existence, but not trading. Apart from the lack of reference to the now dormant company tenant, the break notice was accurately drafted.
The High Court held that the break notice was not so unambiguous as to be properly understood by a reasonable landlord to be an effective notice, even though the landlord’s solicitor had been corresponding on his client’s behalf with the solicitors who drafted and served the notice. The landlord would not be convinced that the break notice had also been served on behalf of T&BCG Ltd.
All those advising and acting for tenants with commercial property leases containing break clauses must ensure that notices seeking to prematurely end a lease are accurately drafted, contain the names of the original or lawfully assigned tenants, and are served in time on the correct landlord or agent. Above all, the break notice must be in precise conformity with the relevant provision in the lease. If a tenant company client has changed its name or is part of a group and the lease has been assigned within the group, it is vital to obtain the title deeds and check the identity of the tenant. Land Registry and Companies House searches are also advisable.
If a break notice is invalid, the tenant will continue to be bound by the terms of a lease that may already have become an unwanted liability in a business that has effectively ceased to trade, and by not checking the identity of the tenant not only will solicitors and others not be able to invoice the correct client, they will also face a potential claim for their lack of foresight.
Break Notices - Get them Right or Pay the Price
