Break options in leases: error in break notice means a tenant cannot end a lease

There have been instances recently where the courts have heard challenges by landlords trying to prevent tenants exercising break options to end a lease.  The latest decision comes from the Court of Appeal where it has ruled that the tenant failed to exercise the break effectively because it made a mistake in the notice. 

In Friends Life Limited v Siemens Hearing Instruments Limited (2014) the tenant had a break right dependent upon satisfying pre-conditions and exercisable by notice on the landlord.  The lease said the notice:

must be expressed to be given under section 24(2) of the Landlord and Tenant Act 1954”.

In September 2012 the tenant’s solicitors served a notice on the landlord exercising the option.  However, the notice did not say it was given under section 24(2) Landlord and Tenant Act 1954.  By the time of its service in September 2012, the reference to section 24(2) was redundant.  It was included in the lease owing to the state of the law in 1999 when the lease was granted.  Since then the law has moved on and today the reason for including the reference no longer applies.  So reference to the section in September 2012 when the notice was served was of no importance.  However, the break clause used the word “must” and the court said a reference to it in the notice was essential for the exercise of the option.

The High Court had ruled in favour of the tenant.  It said:

one cannot realistically attribute to the parties an intention to make the exercise of an important right dependent on compliance with a meaningless formula.”

No” said the Court of Appeal – getting the notice right is just like complying with conditions which say there must be no arrears of rent or any material breach of covenant.  The tenant must do exactly what the
lease says.  There is:

“[no] room for the notion of substantial compliance … Either a purported exercise of an option satisfies both the formal and substantive provisions of the clause, or it does not.  If it does not, then it is ineffective.”

The notice the tenant served was not expressed to be given under section 24(2) so the right to break was lost.

This court concluded by saying:

if you want to avoid … the possible loss of a valuable break right, you must pay close attention to all the requirements of the clause, including the formal requirements, and follow them precisely.”

So before you serve any break notice, check your notice complies with the requirements for service and format of the notice.  Then check again until you are dead sure everything is correct. 

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