Nelsonian blindness is no defence to a break notice

EDIT 22.11.2022: as this post went to press, the Appeal Court departed from the view of both the High Court and the County Court, and proclaimed a strict orthodoxy.  They held that the judge below had asked himself the wrong question; he should have asked whether the notice had been given to the tenant, not what the notice had meant.  The appeal shows that the utmost care must be taken when serving break notices, as the court will show no leniency if the notice is incorrect.  

Ensuring a break notice is validly served can be critical, especially for fixed break dates as without a rolling break option there is only one ‘bite of the cherry’ to break the lease. The consequences of serving an invalid break notice may be drastic, for example, it may fetter a landlord in obtaining vacant possession in order to carry out a development scheme or a tenant may remain liable for a lease that it no longer wants and cannot get rid of in any other way.

The high stakes are perhaps the main reason why the validity of break notices is a question asked of the courts time and time again. In this article we will consider three points that might catch you out when serving a break notice and one that was considered recently by the High Court in Turner v Thomas [2022] and which might save an otherwise inaccurate break notice.

Before considering these points, it is first worth noting that break notices, once served, cannot be withdrawn even by agreement between the parties.  Case law has established that the withdrawal of a break notice gives rise to the grant of a new lease, which can have unintended consequences (SDLT becomes payable, inadvertent release of a guarantor or granting of security of tenure rights etc). If the parties want to continue the lease after a break notice has been served, they have limited options.  They can seek to frustrate the operation of any conditions to the break clause, preventing the break from taking effect.  Alternatively, they could negotiate and enter into a new lease.  It is therefore a risky strategy to serve a break notice as a method of re-negotiation of existing contractual relationships.

Security of tenure

A business lease that benefits from security of tenure pursuant to the Landlord and Tenant Act 1954 (the “1954 Act”) can include a landlord break option. If the landlord validly exercises that break right the contractual term of the lease will come to an end in accordance with the terms of the provisions of the lease. However, a statutory tenancy with protections under the 1954 Act will come into effect as soon as the contractual term ends and the landlord will have to bring the statutory tenancy to an end in accordance with the statutory notice procedure set out in the 1954 Act.

As such, any landlord break notice will need to comply with the requirements of the break clause in the lease and be accompanied by a notice under section 25 of the 1954 Act setting out the statutory ground(s) on which the landlord intends to terminate the statutory tenancy. Without it, the break notice will have limited practical effect, and even then, the landlord has the burden of proving the grounds of opposition to the tenant claiming a new lease.

For that reason, the well-advised landlord will ensure that where it wishes to have a right to terminate a lease, that lease will not have security of tenure rights which could frustrate the landlord’s ability to terminate the lease.

Notice provisions

Provisions of the lease (including those outside the break right) may contain mandatory requirements regarding the service of notices, such as the address to which notices must be sent, the method of service or the form the notice must take. If a lease contains these requirements they must be strictly adhered to as the courts have been unwilling to save any such notices that do not.

Time of the essence  

Where time is of the essence (which might be expressly stated in break provisions of the lease, but can sometimes also be included in the interpretation section of a lease), there is no flexibility as to when any conditions of the break clause have to be complied with. This is especially important in relation to the interpretation of the notice period and timing for the service of the break notice – a break notice served a day late will be invalid. However, some notice periods are ambiguous as to whether a break notice can be served early or whether a specific day of service is required. Often the courts have been sympathetic to the notice giver in these circumstances and held that it would be a ‘commercial absurdity’ to suggest that the break notice had to be served only on one particular day and not a day earlier or a day later.

Time will also be of the essence in relation to the satisfaction of the conditions specified in the break right, although you should consider carefully whether the construction of the conditions require compliance on the date of giving notice, or the time of termination, or both.

The reasonable recipient for matters not explicitly required by a lease, the House of Lords established a test in Mannai Investment v Eagle Star Life Assurance to determine whether an inaccurate break notice was in fact valid. The court said they must consider whether the reasonable recipient, taking into account the circumstances, would have understood from the notice that the giver of the notice wanted to exercise its entitlement to determine the lease.

As such, the courts have held in various cases that there is no need for a break notice to refer to the break clause, the break date or even name the landlord or tenant (unless a requirement of the lease).

It is a question of fact as to whether an inaccuracy or error in the break notice has invalidated the notice.  The court must ask whether the mistake has so  obscured the message, that it genuinely misleads the recipient. This rule has been used to save break notices that have stated an incorrect break date or have been given by somebody other than the landlord/tenant.  

The High Court recently considered this test in Turner v Thomas [2022] where a break notice was served by a landlord on a former tenant who had, unbeknown to the landlord, assigned the lease to a connected company. The test in Mannai was upheld with the High Court concluding that it was clear to a reasonable tenant that the landlord was giving notice to the current tenant to terminate the tenancy and it would have been obvious to the former tenant that the notice to quit should have been addressed to that connected company. The fact that the tenant and the former tenant were connected was an important detail in the High Court coming to their decision.

Each of the decisions regarding break notices turns very much on the facts of the particular case and so hard and fast rules are difficult to be established, although the courts seem willing to save break notices where the mistakes are minor or understandable and the underlying intention is clear.

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