Making the most of your leasehold assets – managing the risk of disputes in the use of break clauses

There have been three recent cases where the Courts have had to determine disputes about the validity of break notices.

Case 1

In Riverside Park Limited v NHS Property Services Limited the High Court had to consider whether the Tenant (Riverside) had given vacant possession in accordance with the break clause.  During the term of the lease, the Tenant had carried out various works including installing partitioning.  When the Tenant moved out, it failed to remove these works and the Landlord argued that the Tenant had not given vacant possession.  The High Court held that on the specific facts the partitioning comprised chattels that substantially prevented or interfered with the right of possession and therefore the Tenant had not given vacant possession.  Accordingly, the break clause was not effective and the lease did not end.  In particular, the Court took into account the specific facts; namely that the partitions were standard demountable partitions and that the configuration of the partitioning was unique with its purpose to benefit the Tenant rather than to make lasting improvements to the premises.

The case does particularly highlight how fact-dependent is compliance with provisions for delivery up of vacant possession.  For instance, the licence giving permission to install the partitioning required it to be affixed in a specific manner.  Whilst a mere study of the leasehold documentation including the licence may have led to the assumption that the partitioning had been installed in accordance with the licence, in fact, it had not been.  Similarly the “substantial interference” part of the judgment seems largely to have depended upon the Landlord’s view as to how marketable the premises were in their partitioned state.  This part of the decision could not be determined upon the papers and indeed would not have been obvious from any inspection, but would have required an expert market appraisal.

In conclusion advising upon compliance with break provisions in the lease is usually complex and is not an easy matter that can merely be presumed within the confines of the lease documentation.

Case 2

In the second case of Tyco Fire and Integrated Solutions (UK) Ltd v Regent Quay Development Company Limited, the issue was whether an error in the break notice was sufficient to make it invalid.  The Tenant (Tyco) had entered into a lease for 2 units (units 3 and 4).  There was a variation to the lease which added an additional unit (unit 1) and gave Tyco an option to terminate the lease in August 2016 upon giving 6 months’ notice.  A break notice was served in January 2016 and the notice in error referred to only units 3 and 4 and the letter defined “Lease” by reference to the original lease which  covered only those units.  There was no explicit reference in the break notice to unit 1.

After the 6 month window for serving the break notice had passed the Landlord informed Tyco that they considered the notice to be ineffective.  Both parties agreed that any valid break notice must be sufficient, clear and unambiguous to leave a reasonable recipient in no reasonable doubt as to how and when it is intended to operate.  The Landlord argued that as the break notice defined the premises as units 3 and 4 and there was a reference to the original lease only then a reasonable recipient could think that Tyco only intended to break its lease of units 3 and 4 and leave the part of the lease relating to unit 1 in place.  On that basis, the Landlord argued that the notice was invalid.  Tyco for their part stated that the letter was sufficiently clear and that it was evident as to the intention of the notice.

When the notice was read as a whole then it was clear that the whole of the lease of units 1, 3 and 4 were being terminated.  The Court held in favour of Tyco, considering that the arguments put forward by the Landlord should be disregarded and that they had not created confusion in the mind of a reasonable recipient.

This case shows that minor errors will not undermine an otherwise valid notice and the case reinforces a line of authorities where the Courts have decided that they will not allow technical inaccuracies to invalidate an otherwise valid notice.  The challenge is whether the error is, in fact, a minor technical one or is sufficient to have caused confusion in the mind of the reasonable recipient.

Case 3

Finally in the Levett-Dunn v NHS Property Services Limited case the key issue centred upon the identity and address of the Landlord and whether the break notices were effective to determine the lease.  The key facts of the case were that there were three individuals and a professional Tenant company who were trustees of a retirement benefits scheme and defined as Landlords.  The address for all four was given as 75 Tyburn Road, Birmingham.

This address was central to the case as four separate notices were sent to that address by recorded delivery and a signature obtained from Howard Evans.  The Landlord raised many arguments as to the invalidity of service of the notices: amongst others, he claimed that the notice had not been validly served as 75 Tyburn Road was not the place of abode of any of the Landlords.  Furthermore, the Landlord argued that the individual who signed for the notice was in fact not Howard Evans but someone else who had given that name.

Although the Court agreed with the latter evidential point it determined that any reasonable person would understand that the address of 75 Tyburn Road in the lease was stated to be the place of abode or business for the purposes of service of the break notice.  Accordingly, the Court held the lease had been validly terminated.

These cases illustrate some of the pitfalls (as in the Riverside case) and also the ways in which the Court may view minor errors in break notices (the Tyco and Levett-Dunn cases).  In managing property assets, it is essential to ensure that opportunities that arise are correctly acted upon without giving rise to future disputes.  All of these three cases in 2016 show that there is regular litigation on the subject of break clauses.  This is clear evidence that this is an area of law which is complex and where great care must be taken to ensure compliance with all the relevant requirements of the break clause provisions.

Further information

For more information, please contact Hilary Harrison or Cynyr Rhys.

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