The clear moral is: if you want to avoid expensive litigation, and the possible loss of a valuable right to break, you must pay close attention to all the requirements of the clause, including the formal requirements, and follow them precisely.
The words above were written by a judge (Lord Justice Lewison), informing the German multinational conglomerate Siemens that they would not, as they’d hoped, be allowed to exercise the break clause that they had carefully ensured was written into their lease, and which they then sought to exercise.
The problem? The break clause said that notice must be given under “section 24(2) of the Landlord and Tenant Act 1954”, and Siemens’ lawyers neglected to name-check that section of that act in their letter.
When it comes to the law, the devil truly is in the detail.
The High Court accepted that there was no legal implication to the failure to name the act. That wasn’t the point. In delivering the verdict, the Court referred back to the words of Lord Justice Hoffman, when he ruled on a previous 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 result? Siemens was locked in for ten years at £325,000 per year (plus rates, insurance etc.).
This is not an isolated case. There are plenty of other high-profile examples of head-in-hands moments related to break clauses:
- A new person took on the lease (assignee) but later tried to exercise the break clause, something which was disallowed because they forgot to register the lease assignment with the Land Registry
- Sackville UK Property Select II (GP) No.1 Ltd v Robertson Taylor Insurance Brokers Ltd
- Another tenant was lucky they didn’t go to the land registry, because they reassigned the lease to their own parent company, something which would have invalidated their non-transferrable break clause, except that the reassignment was held to be incomplete due to a lack of Land Registry (side-note: rights are often non-transferrable unless you use careful language like “their respective successors in title“)
- Brown & Root Technology v Sun Alliance
- The notice of exercising the break clause was sent to the landlord’s business address, but the lease specified that such correspondence was to go to the registered office
- Claire’s Accessories v Kensington High Street or equally Capital Land Holdings Ltd v Secretary of State for the Environment
- The lease specified that the tenant should repaint the property and do so within the final year of the shortened lease before exercising the break cause; the break was disallowed because the painting was finished a month too early
- Bairstow Eves (Securities) Ltd v Ripley
- The break clause was invalidated because the tenant sent the break notice to the landlord only, but the contract stated it must be sent to both them and also their managing agent
- Hotgroup plc v Royal Bank of Scotland plc
If you’re the tenant, you could view it as a pedant’s paradise. However, all the break clause is doing is offering clear protection for all parties.
But you must follow the rules.
Tips for a commercial tenant on correctly serving the notice:
- Re-read the lease and consider all of the terms carefully.
- Serve in good time and in accordance with all conditions of the break clause.
- Adopt the wording of the break clause.
- Confirm that you, the current tenant, is allowed to serve the break.
- Check the legal identity of the current tenant and landlord; make sure you’re serving to and on behalf of the correct party.
- Go to Companies House and get the Registered Address of the landlord; send it to there and to their everyday business address (if different).
- Send in a way that’s provable, such as recorded delivery.
Tips for a commercial tenant on complying with a break clause:
- Check exactly what conditions must be complied with for the break to operate.
- Comply with everything, even if common sense tells you there is no need.
- Make sure you know from when and to when compliance is needed.
- Make sure you’ve paid everything – service charges, rent, default / mandatory interest even if not demanded.
- Make sure the landlord can re-lease or occupy without any legal or physical impediment.
- In connection with the above, note that clauses about handing back the property in good condition / repair are mainly judged in term of whether the landlord can let the property out again without delay or cost.
- If the break clause is exercised in the middle of a rent period, make sure you’ve paid all rent required to be paid in advance; depending on the lease, you may or may not be able to reclaim the rent for the portion of the rent period when you won’t be using the property.
Tips for the landlord:
- Don’t forfeit your rights. The onus is on the tenant to comply fully; if they don’t, it’s their fault not yours – you didn’t make them sign the lease.
- Make sure the notice has been correctly served to you; if not, you are in control. Do not prejudice yourself by accepting an incorrectly served notice. If in doubt, check with us or your lawyer.
The most critical tip is to seek advice from qualified professionals such as Wishtower or your lawyers. Litigation involves time and money, so it is best avoided if possible.
This update is provided free of charge for information purposes only: it does not constitute legal advice and should not be relied upon as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of Wishtower or by Wishtower as a whole.