Property Litigation – June 2010
Break Notices: a continuing problem for Tenants?
In the current economic climate we can expect more break notices to be served than would otherwise be the case. Hotgroup plc v Royal Bank of Scotland plc is a good example of this increasing trend, but is also a painful reminder of what can go wrong.
The Facts
In this case, the break clause provided that the Lease could be terminated by the Tenant on 3 July 2010 by giving not less than nine months notice to the Landlord.
The Landlord was Royal Bank of Scotland plc. The Bank was holding the property on trust for a large unit trust and the unit trust had appointed a property manager to deal with its portfolio of properties.
The notice clause in the Lease provided that no notice under the Lease would be deemed to be validly served on the Landlord unless a copy was also served on the property manager.
The Tenant served notice to break on the Landlord in September 2009 but failed to also serve a copy on the property manager at the same time. The property manager only became aware that the Tenant had purported to exercise the break on 19 November 2009, after the deadline for service had expired.
How would the Court deal with the strict terms of the Lease?
The Tenant argued that, as the notices clause did not specify a time limit for service of the copy notice on the property manager, it should be an implied term that the property manager had to be served within a reasonable period of time and that the Tenant had done this.
However, the Court took the view that the notices provision was quite clear. It provided that a notice would simply not be effective unless a copy was also served on the property manager.
The Court's decision was simple. As notice had not been served on the property manager by 3 October 2009, which was the last date for service of the break notice, the break clause had not been validly exercised.
There was no need to imply a term that notice had to be served on the property manager "within a reasonable period of time" because the notices clause worked perfectly well without it. The break was ineffective, the Tenant lost the case and the Lease continued.
A harsh lesson for the Tenant?
There is nothing unusual about having to comply with both the terms of the break clause as well as additional clauses in relation to service of notices.
This is all standard practice but reiterates the need to look beyond the break clause itself when looking to break a Lease. Proper preparation and all that!
Rob Nicholson is a partner at Michelmores and Head of the Property Litigation Team. For further information on the issues raised in this article, please contact Rob at rob.nicholson@michelmores.com.
This information has been prepared by Michelmores LLP as a general guide only and does not constitute legal advice on any specific matter and should not be relied upon as such. We recommend that you seek professional advice before taking action. No liability can be accepted by us for any action taken or not taken as a result of this information.
