Breaking the mould
- Breaking the mould
- Guarantees and the "one that got away"
- Fracking update
- Steel a march
- Put a cap on it
- Extending the reach of Adjudication into Collateral Warranties
First appeared in Informer: Real Estate Newsletter - Autumn 2013
Break notices have long caused sleepless nights for tenants and their lawyers alike. Get them wrong on a "one stop shop" break date, and a tenant could be left with space it doesn't want at substantial expense for the rest of the term. Some landlords will jump on even the most innocuous inaccuracy, either to exert leverage, or worse still to contend that the break notice is invalid. Even having served a notice correctly, the tenant will not be out of the woods if the break is conditional. In the two recent cases below the tenants achieved favourable outcomes (although only just), but they still serve as a reminder to take extreme care when drafting tenant's break clauses and break notices, and when complying with any conditions.
Marks and Spencer PLC v BNP Paribas Securities Services Trust Company (Jersey) Limited
M&S was the tenant of four floors in an office building in Paddington. The lease (actually four leases on identical terms) contained a tenant's option to break on 24 January 2012. Rent was to be paid on the usual quarter days. M&S served a break notice validly, and in time. But the break was conditional (among other things) on there being no rent arrears on 24 January 2012.
The December quarter's rent fell due (as usual) on 25 December 2011. M&S had already served its break notice in July. Even though the notice would operate to bring the lease to an end a month later on 24 January 2012, M&S were (prudently) advised to pay the rent for the full quarter (i.e. up to 25 March 2012) on the December quarter day. This was to ensure the exercise of the break was not invalidated.
The break notice was effective, and the lease ended on 24 January 2012. But M&S had paid rent for two months more than it had been in occupation – in this case a very substantial sum. Even though previous case law was clear that this ‘wasted rent’ was payable as a condition of the break, M&S sought repayment. The landlord refused.
Significantly (and in what is really a departure from the previous case law on this point), the court held that M&S was entitled to a refund, even though there was nothing in the lease which said so. The judge accepted M&S's argument that (in this case) there was an implied term in the lease which entitled it to a refund. A conclusion many would say accords with the justice of the situation.
Whilst helpful to tenants, it is a useful reminder to them that when negotiating a lease, to seek to have it expressly and unambiguously state that any sums paid for a period after a break date should be repaid by the landlord. This is fair and would have avoided costly litigation.
Finally, it should be noted that an appeal from the landlord is underway – so watch this space.
Siemens Hearing Instruments Limited v Friends Life Limited
Here the court held a tenant’s break notice was valid even though the break clause required it to use prescribed wording and it did not. The break clause said the tenant's notice had to be expressed "to be given under section 24(2) of the Landlord and Tenant Act 1954". No reference was made to that provision in the notice as served by the tenant's solicitors.
The tenant argued (and the court agreed) that there was no such thing as a notice under that section, and therefore leaving out the required wording did not - in this case at least - make the notice invalid. In addition, because the lease did not provide for what the consequences would be if that requirement was not complied with (and this lease did set out the consequences of non compliance with other aspects of the clause), it was reasonable to assume that there would be at least some circumstances in which the notice would not be invalidated, even if it did not comply strictly with the requirements of the break clause.
The tenant in this case was extremely lucky. Its lawyers had drafted a notice which was plainly not compliant with the strict machinery of the break clause. Even though actual compliance would have been meaningless, it would have been quite easy to draft the break notice in keeping with the clause. Whilst the case is helpful to tenants, it does somewhat turn on its facts, and if anything, it serves as a reminder to tenants and their lawyers to draft break notices with extreme care. Tenants should still ensure that they comply with the requirements of the break clause to the letter, even if to do so produces a non-sensical result.