09 April 2014

The Court of Appeal in Friends Life v Siemens [2014] EWCA Civ 382 has just delivered a sharp reminder of the need for absolute compliance with the terms of an option to break the lease.

A break clause provided that the tenant’s notice to exercise the break “must” refer to section 24(2) of the Landlord & Tenant Act 1954 (LTA). This had been included because, when the lease was granted in 1997, it was feared that tenants might be able to serve notice to break then exercise the right to request a new tenancy at a lower rent under section 26 LTA. In 1998 the Court of Appeal confirmed in the case of Garston v Scottish Widows that a tenant could not do so and such wording was no longer included in leases after that.

When the tenant came to exercise its right to break the lease it complied in all respects with the terms of the break clause except that the notice did not expressly refer to s.24(2). The landlord claimed the break option had not been properly exercised but the High Court decided that that the notice was valid despite the omission. It reasoned that the break clause was part of a well-drafted lease which did not actually say that a failure to refer to section 24(2) of the LTA was fatal to the break operating, in contrast with other pre-conditions such as giving vacant possession and paying the rent up to date. Omitting the reference to section 24(2) made no difference to the landlord as the missing words would not give the landlord any relevant information. The parties would not have intended to make the exercise of an important right dependent upon the inclusion of meaningless words.

The Court of Appeal overturned the decision, adopting an orthodox interpretation of the common law requirement of exact compliance with every term of an option and referring to the often quoted comment from an earlier case: “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 clause provided that the break notice “must” refer to section 24(2) and failure to do so – even if the reference was completely pointless – meant the tenant had not validly exercised the option to determine the lease, which will now continue until 2023.

This case clearly illustrates that, as well as paying meticulous attention to detail when exercising a right to break a lease, tenants should, when negotiating the terms of a break clause, be extremely wary of agreeing to any pre-conditions which could store up trouble for the future. The slightest non-compliance, however trivial, can result in the tenant losing the right it thought it had bargained for.

If you would like more information on break clauses please get in touch with your usual contact in our Real Estate or Real Estate Disputes teams.

Key contact

Colin Ligman

Colin Ligman Partner

  • Real Estate
  • Banking and Finance
  • Corporate Restructuring and Insolvency

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