Break notices – don’t take your chances!
NOVEMBER 2009
A recent case has confirmed that tenants cannot afford to make mistakes when it comes to exercising a break option.
Tenants will be looking for maximum flexibility in the current market, meaning that they may well want to exercise break options in their leases. However, a recent case has confirmed that break notices must be drafted and served correctly. If they are held to be invalid, a tenant may find itself tied in to a lease for many more years than it would like. This may, of course, mean paying more than it can afford.
In the case of Prudential Assurance Company v Exel UK and another, some commercial premises in north London were let to two tenants that were group companies. Exel UK Limited was the first tenant and the second tenant was a dormant company.
The tenants’ solicitor served a break notice at the correct time, but the notice just stated that it was served on behalf of Exel UK Limited, not the second tenant. Although the notice heading showed the second tenant as being a party to the lease, the body of the notice did not mention the second tenant.
The landlord argued that the notice was invalid because it was not served on behalf of both tenants. The landlord said that the second tenant’s position was unclear and it may have been deliberately omitted from the notice.
The tenants, on the other hand, argued that it was clear to the landlord that the solicitors serving the notice were acting for both tenants, and the meaning of the notice was obvious.
The High Court agreed with the landlord. It held that it was not clear that the notice had been served on behalf of both tenants. The notice contained conflicting wording, which would have caused real doubt on the part of the reasonable recipient of the notice. The decision means that the tenants’ lease continues until the contractual expiry date in 2012.
This case confirms that extreme caution should be exercised when drafting break notices. Tenants must provide their solicitors with evidence of the identity of both the landlord and tenant, recent rent demands and of course the deeds for the property. Their solicitors, in turn, must check these documents carefully and also make enquiries of the Land Registry and Companies House as appropriate.
Often, break options can only be exercised if certain conditions, as set out in the lease, are fulfilled. However, as well as dealing with these conditions, tenants and their solicitors should not overlook the necessity of checking the parties’ identities. Break notices will be strictly construed and, although they will be valid if their meaning is clear, mistakes can be very costly.
If you would like any further information about the issues raised in this article please contact Rosie Davies or another member of Goodman Derrick LLP's property department on 0207 404 0606.
This is a guide for general information and interest only and should not be relied upon as providing specific legal advice. |
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