Break Notice Content: Comply Or Die?

Following hot on the heels from the High Court decision in Marks and Spencer Plc v (1) BNP Paribas Securities Services Trust Company (Jersey) Limited and (2) BNP Paribas Securities Services Trust Company Limited [2013] EWHC 1279 (Ch) comes another key decision affecting the exercise of break options.

Introduction

In Siemens Hearing Instruments Limited v Friends Life Limited (12 July 2013), the High Court was called on to decide an issue on the construction of break notices. Its analysis represents a shift from the strict acceptance of all requirements specified in the lease as to what should be included within a break notice and demonstrates that the parties should always consider the contents of a break option with the utmost care before either serving the notice or choosing to challenge its validity.

In this regard, any exposition of this subject has to be started with the seminal decision in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] A.C. 749 ("Mannai").

Following Mannai, it was established that the construction of break notices had to be approached objectively, and the question was how a reasonable recipient would have understood them. This general statement of the objective assessment of the construction of break notices then had also to be read against the stipulated requirements of the break option; as Lord Hoffman said in Mannai, "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".

Mannai has of course been wheeled out time and again whether by practitioners seeking to maintain (or challenge) the validity of notices or by the Court in its assessment of the construction of such notices. The case under review was no different and the results were significant.

Siemens Hearing Instruments Limited v Friends Life Limited

The Facts

In the instant case, Siemens Hearing Instruments Limited ("SHIL") occupied premises in Crawley, West Sussex pursuant to a lease ("the Lease") dated 27 January 1999 made between (1) Sun Life Assurance Society Plc (later Friends Life Assurance Society Limited ("FLL") and (2) SHIL (which was then known as A&M Hearing Ltd).

The Lease was granted for a term of 25 years from and including 24 August 1998 at an initial rent of £224,000 per annum (which, by the date of the Judgment had been increased to £325,000 per annum) and included a tenant-only break option at clause 19.

By virtue of that clause 19, the break date was specified to be 23 August 2013 and the material part of clause 19 was clause 19.2 which stated as follows:

"Subject to the pre-conditions in clause 19.3 being satisfied on the Termination Date, and subject to clause 19.4 the Tenant may determine the Term on the Termination Date [i.e. 23 August 2013] by giving the Landlord not more than 12 month's [sic] and not less than six month's [sic] written notice, which notice must be expressed to be given under section 24(2) of the Landlord and Tenant Act 1954. The term will then determine on the Termination Date, but without prejudice to any rights of either party against the other for any antecedent breach of its obligations under this Lease".

On or about 28 September 2012 (i.e. within the notice period provided for by clause 19), SHIL's solicitors served a break notice that purported to terminate the Lease on 23 August 2013 in accordance with clause 19 of the Lease.

The validity of the break notice was, however, challenged by, or on behalf of, FLL on the grounds that, contrary to the express wording of clause 19.2, the break notice failed to state that it was given under section 24(2) of the Landlord and Tenant Act 1954 ("the 1954 Act").

By way of recap, the material provisions of section 24 of the 1954 Act state:

"24 Continuation of tenancies to which Part II applied and grant of new tenancies

A tenancy to which this Part of this Act applies shall not come to an end unless terminated in accordance with the provisions of this Part of this Act; and, subject to the provisions of section 29 of this Act, the tenant under such a tenancy may apply to the court for a new tenancy - if the landlord has given notice under section 25 of this Act to terminate the tenancy, or if the tenant has made a request for a new tenancy in accordance with section 26 of this Act. The last foregoing subsection shall not prevent the coming to an end of a tenancy by notice to quit given by the tenant, by surrender or forfeiture, or by the forfeiture of a superior tenancy, unless - in the case of a notice to quit, the notice was given before the tenant had been in occupation in right of the tenancy for one month." Therefore, taking all of this into account, when deciding the case under review, Mr N Strauss Q.C (sitting as a deputy judge of the Chancery Division) directed himself that what he had to decide was whether the break notice as served was a valid notice, taking effect (subject to the due fulfilment of the pre-conditions) so as to terminate the lease on 23 August 2013 notwithstanding that it was not expressed to be given under section 24(2) of the 1954 Act.

The Initial Problem

Before considering the respective parties' positions the Court first had to consider an issue relating to section 26(2) of the 1954 Act that, at the time of the grant of the Lease was unresolved. It was common ground between the parties that both the 1954 Act and this issue formed the essential background to the construction of clause 19 of the Lease.

The key issue referred to (referred to as the Garston point in the Judgment) was the issue as to whether, by virtue of the proviso to section 26(2) of the 1954 Act, a tenant could simultaneously exercise a break clause (which would be within the extended definition of "notice to quit" in section 69 of the 1954 Act) and request a new tenancy under section 26...