There has
been another interesting decision affecting the exercise of break options. In SiemensHearing Instruments v Friends Life Limited (12 July 2013) the
High Court held that the tenant’s break notice was valid even though it did not
comply with one of the requirements of the break provision. In this case the
break provision made it clear that the break notice should be expressed to be
given under Section 24(2) of the Landlord & Tenant Act 1954. The
tenant did not include this in their notice and therefore the landlord challenged
its validity on this basis.
The decision
in Mannai Investment Co. Ltd v. Eagle Star Life Assurance Company Limited
1997 established that the construction of a break notice had to be
approached objectively and whether or not a reasonable recipient would have
understood what the notice intended to do. However, this has to be read
against the subjective requirements of the break clause. The famous quote
from Lord Hoffman sitting on this case is “if the clause had said that the
notice had to be on blue paper, it would have been no good serving a notice on
pink paper, however, clear it might have been that the tenant wanted to
terminate the lease”.
The court
reached their decision not because they felt that the clause was helped by
Mannai, as on this basis it decided that the notice did not comply with the
provision, but because the court moved on to consider the consequences of the
non-compliance with the notice. They made it clear that where the statute or
contract term provides that a noncompliant notice will be invalid or
ineffective that will be the end of the matter. However, where it does
not, the court must assess the statutory or contractual intention by the usual
objective criteria, including the background and purpose of the provision and the
effect of non-compliance.
Looking at
the form of this particular break provision, the fact that the notice was to be
specified as being under section 24(2) did not have a specified consequence for
noncompliance, whereas other conditions did and as this was a well drafted and
considered lease, the parties could not have intended deviation from this
condition to have a consequence.
This decision
has surprised many commentators as, having established it was a requirement of
the break option to include the wording in relation to section 24(2), it seemed
sensible to conclude that the exercise of the break would have failed without
considering the issues further. Therefore most commentators think this decision
is likely to be appealed so watch this space.
It serves as
yet another reminder that break options should always be considered carefully
when drafting and exercising them!
by Rebecca Nash, Associate
