In the April 2014 (English) Appeal Court decision in Friends Life Limited v Siemens Hearing Instruments Limited, the court decided that a notice by Siemens (the tenant) exercising a break right in its lease was ineffective - even though the defect in the notice was (to all intents and purposes) immaterial.
Fact of the Friends Life case
The lease allowed Siemens, the tenant, to break the lease by giving to Friends Life (the landlord) notice to that effect. The break clause said that the notice must be expressed to be given under S24(2) of the Landlord and Tenant Act 1954.
The wording about the 1954 Act (which is a statute applicable to leases of English property) was apparently included in an attempt to ensure that Siemens could not exercise the break and then request a new tenancy under S26 of that Act. This concern (at the time of drafting) seems to have been removed as a result of another case that had decided that a tenant could not exercise a break and then request a new lease, starting after the break, using S26.
Friends Life argued that the break notice was defective because it did not include the required reference to S24(2) and that the break had therefore not been exercised.
Although it was correct that the break notice had not included the required wording about the 1954 Act, in fact there was no such thing as a notice "served under" section 24(2) and therefore the omitted words were essentially meaningless anyway.
Decision of the lower court (the High Court) in 2013
In the original court case, the High Court took the view that although the notice had failed to comply with one of the requirements set out for it in the lease, it was still valid because:
- The break clause was part of a well drafted lease and it did not say that a failure to refer to S24(2) was fatal to a break notice. This could be contrasted with other elements of the break clause, such as the provision making time of the essence and the requirement to fulfil certain preconditions; and
- The omission of the reference to S24(2) made no difference to Friends Life. The missing words (had they been included) would not have given the landlord any important or even relevant information. It was not realistic to attribute to the parties an intention to make the exercise of an important right dependent upon the inclusion of meaningless words.
However, that decision was reversed on appeal.
Decision of the Appeal Court in 2014
Use of the word "must" relative to the notice being expressed to be given under the 1924 Act was a mandatory pre-condition - and if the notice was not so expressed then the pre-condition had not been satisfied and therefore the break notice was incompetent.
Lord Justice Lewison said:
….."must" is an emphatic and imperative word. It is impossible in my judgment to interpret the clause as if it said that the notice "must" be expressed in a certain way, but it does not matter if it is not."
"I do not accept that in the field of unilateral (or "if" contracts) there is any room for the notion of substantial compliance. As [another judge] said in [another case] the question is whether the relevant event has occurred. That question is to be answered "Yes" or "No". It cannot be answered "Almost". 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. In my judgment ours is such a case. I appreciate that that is a harsh result, but hard cases make bad law."
"The clear moral is: if you want to avoid expensive litigation, and possible loss of a valuable right to break, you must pay close attention to all the requirements of the clause, including a formal requirement and follow them precisely."
Moral of the (scary) story…?
Although this is an English court case, it is quite possible that the Scottish courts will find it persuasive.
So, if you're the tenant - then the moral is to spend a bit of time getting the notice right, or repent at leisure.
On the other hand, if you're the landlord, this is encouragement (if any more was required) to examine every detail of a tenant break notice and use any minor failure to comply with the lease clause requirements that you might find to try to challenge the competency of the notice.