To break, or not to break

Today’s decision of the Court of Appeal in Siemens Hearing Instruments Ltd v Friends Life Ltd has been long awaited by the property sector and the Court of Appeal decision in the Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd appeal is due to follow shortly.

Siemens Hearing Instruments Ltd v Friends Life Ltd (2013)

In Siemens, the High Court held that a notice purporting to exercise a lease break was effective, even though the notice did not comply with all the requirements set out in the lease. The lease provided the tenant had a right to break the lease at the end of the fifteenth year of the 25 year term, on giving not less than six, and not more than twelve months’ written notice to the landlord. The lease required the break notice to specify particular wording, namely that the break was being served in accordance with Section 24(2) of the Landlord and Tenant Act 1954 (“LTA 1954”).

Within the correct timeframe, Siemens served written notice on the landlord, purporting to exercise the break. However, the tenant’s solicitors did not include the “magic words” in the break notice. In all other respects the notice was good, but it made no reference to section 24(2) LTA 1954. The question was, therefore, had the tenant succeeded in exercising the break? Was the notice effective even though it was not, as required by the lease wording, expressed to be given under section 24(2)?

At first instance, Nicholas Strauss QC (siting as a Deputy High Court Judge) held that the notice was valid, on the basis that it was clear what it was meant to achieve. Strauss said that, in the particular circumstances of the case, including the “magic words” in the notice would have been pointless.

The landlord appealed and in a decision handed down by the Court of Appeal today the landlord’s appeal was allowed. Lord Justice Lewison said “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.”

Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2013] EWHC 1279 (Ch). At first instance, Morgan J implied a term into a lease to the effect that, when the tenant exercised its break right, the tenant was entitled to the return of the rent in respect of the period after the break date.

At first instance, for the first time ever, Morgan J held that the landlord was under an implied obligation to pay back to the tenant the balance of the quarter’s rent, service charge and insurance monies where the tenant’s break date fell part way through that quarter. This first instance decision was a departure from the widely-accepted view that, in the absence of an express provision, a tenant will not be entitled to a refund of any rent etc paid in advance, but which relates to the period after a break date.

Perhaps unsurprisingly, the landlord appealed on the basis that no such obligation should be implied; rather, that the wording of the break clause – and of the lease generally – should stand, so that the tenant would only be entitled to a refund if the lease expressly said so.

As soon as the Court of Appeal decision is handed down we will update readers and in the meantime tenants and their solicitors are warned to exercise extreme care when drafting break clauses and break notices.

If you would like to discuss any of the issues raised in this article, please contact Kate Andrews.