26 February 2010 by

Achy breaky … lease

The valid exercise of a break clause is always important to parties to a lease but in the current climate, where good tenants are invaluable to a landlord, even more so.

In a difficult economic climate the ability to terminate lease obligations can lead to legal challenges from the party who is keen to keep the landlord and tenant relationship alive. They may, for example, jump on any mistake in the prescribed notice procedure particularly where break notices are given at the very last minute. As a result the opportunity for extensive litigation opens up before the parties and a simple procedure can turn into a legal minefield.

The case of Orchard (Developments) Holdings plc v Reuters Ltd aptly demonstrates the pitfalls a tenant can face if it does not adhere strictly to the wording of the lease when serving a break notice.

The case concerned a lease of commercial premises owned by Orchard. Break clauses at the end of the 5th or 10th year of the lease could be exercised by the tenant (Reuters) giving 6 months’ notice and provided that notice served by fax was not valid until the landlord had acknowledged receipt.

Reuters accordingly sent notices by letter and by fax on the deadline for the 6 months’ notice. The High Court later found that the letter had been put in the wrong letterbox and held that the notice was therefore ineffective. Reuters argued that a letter received from the landlord after the break date acknowledged the notice and thus retrospectively validated it. The court rejected this argument and emphasised that a notice which is invalid when it is served cannot be retrospectively validated after the break date.

This just left the faxes which both parties accepted could only be effective if receipt had been acknowledged, which had been the case, but only some months after the faxes were sent.

The case went to the Court of Appeal. The question before the court was whether the acknowledgement of the notice went to the heart of whether the notice was valid or not. If the receipt for the notice was not crucial then the notice would have been considered served when it was actually received (within time).

The Court of Appeal, however, disliked the uncertainty this would create. It would mean that a notice could be ‘validated’ if at some point it was acknowledged by the recipient, even several months later. The Court, therefore, found that both the notice and the acknowledgment of notice must be served within the specified notice period. So in this case the notice was considered to be ineffective by the court.

The important lesson here is that tenants must use a form of service which is clearly effective to break the lease and if using a form of notice requiring acknowledgment that such acknowledgment is received before the notice expires. Obviously the requirements to validly exercise the break in each case will depend on the specific clause in the lease.

It is important to diarise any dates and to strictly comply with requirements as to the form and service of notice. Otherwise you could be in for a very rocky break up…

11 January 2010 by Nicki Iliffe

Need a new boiler

At the beginning of January the Government introduced a new scheme designed to get people to replace their old inefficient boilers with new more efficient ones. The scheme provides that up to 125,000 households will be given £400 towards the cost of a new boiler.

25 February 2010 by Lynne Burdon

2010 – My best year ever!

As part of any plan it is important to think about what can go wrong. For me that means thinking about an early death, or maybe even worse a serious physical or mental illness, and how my children would manage without me.

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