Break clauses: failure to comply strictly with notice requirements may not always be fatal
There have always been challenges to the validity of break notices and there will always be more challenges where the market favours the tenant.
There have always been challenges to the validity of break notices and there will always be more challenges where, as in the present, the market favours the tenant.
The recent case of Siemens Hearing Instruments Ltd v Friends Life Ltd gives guidance on when, despite a tenant’s non-compliance with a break clause’s requirement to include certain details on a notice, the break may still be effective.
In Siemens the tenant benefitted from a 25 year lease with an option to break in the 15th year provided the tenant gave, “… not more than 12 month’s and not less than 6 month’s written notice, which notice must be expressed to be given under section 24(2) of the Landlord and Tenant Act 1954”.
The tenant was also required to satisfy a list of pre-conditions by the effective date in order for the break to be effective.
The requirement to serve notice under section 24(2) of the Act was based on an uncertainty at the time as to whether a tenant could simultaneously break a lease and request a new lease (hopefully on more favourable terms). By the time of the hearing that issue had been resolved with the answer to the question being no, it could not.
The tenant contended that there was no such thing as a section 24(2) notice and the wording of the break clause was designed purely to ensure that the tenant did not request a new tenancy at the same time. As such, the requirement to stipulate that the notice was served under section 24(2) was not mandatory.
Alternatively the tenant submitted that the lease did not state what the consequences of a non-compliant notice would be.
The tenant submitted that there were no adverse consequences and so the notice should survive non-compliance.
Fortunately for the tenant, the Judge accepted the second argument. He first held that the wording of the break clause was clear and, even though there was no such thing as a section 24(2) notice, the tenant was required to stipulate that the notice was served under that section. The notice did not state that fact and so it was non-compliant.
However, the Judge went on to consider what the consequences of non-compliance were and concluded that it made no difference to the landlord at all. The lease was well drafted by professionals and whilst it expressly stated that non-compliance with the other pre-conditions would render the break invalid, it made no such statement in relation to a failure to include the reference to section 24(2) on the notice itself.
The failure to use the required wording made no difference at all. All that mattered was that there was no simultaneous request for a new tenancy.
The Judge also gave a useful summary of principles to be applied when considering issues of this nature:
- Where a statute or contractual term provides that a non-compliant notice will be invalid or ineffective, that is the end of the matter.
- Where it does not, it is up to the Court to assess the statutory or contractual intention by, amongst other things, considering the background and purpose of the provision, and the effect of non-compliance (if any).
- If a professionally drafted statute or contract does not specify the consequences of non-compliance, it can reasonably be assumed that this was a deliberate omission, and the decision as to whether the non-compliance is fatal was intended to be placed in the hands of Court.
- The use of the words “must” or “shall” in a break provision are not absolute. The Court will look at the substance of the wording as a whole, not merely the form.
- The actual effect of non-compliance will often be the deciding factor. On consideration of the nature, extent and effect of that non-compliance, if the landlord is not prejudiced then the notice may survive.
- Provisions for the exercise of an option are usually mandatory but this rule is not inflexible. Whilst non-fulfilment of any conditions for the exercise of an option will be fatal, the same will not always be true in relation to the form of an advance notice of the exercise of that option.
The tenant in this case was fortunate. The message for landlords and tenants alike remains the same: always check the break provisions carefully and identify what is required in order to be compliant. Tenants should ensure total compliance or risk having to rely on a Court to save them; however, the Court may not always be willing to do so.
Matthew Lake is a Solicitor in the Property Litigation team at Weightmans LLP. For more information contact Matthew at email@example.com.