Update: landlord and tenant

The recent decision in MW Trustees (and others) v Telular Corporation [2011] EWHC 104 (CH), is an important one for those active in commercial landlord and tenant affairs. It concerns the operation of break clauses and what is considered by the court as suitable service of notice.

The precise form, content and service provisions of notices can take two forms '“ either by the incorporation of express provisions within negotiated contractual terms, or via statutory provisions under either the Law of Property Act 1925 or the Landlord and Tenant Act 1927. It is the former '“ by far the more common in contemporary leases '“ that was the subject of the present case.

In MW Trustees the defendants held a lease of commercial premises that contained a break clause. They decided to exercise their rights under the clause to terminate their tenancy. In accordance with the terms of the lease they served notice on the landlord in writing giving the requisite notice period. The notice was correctly sent by special delivery.

At the time of the service, the tenants were unaware of the fact that there had been a change of landlord. The notice was therefore served on the old landlord, not the current landlord. The old landlord advised the defendants of their error and advised them to serve notice on the current landlord. The defendants then sent an email to the managing agent attaching a copy of the notice.

The managing agent replied in an email to the defendants stating: 'We accept the attached letter and can confirm we are happy for you to break the lease.' They then gave details of the new landlord.

The landlord claimants contended that the break clause was defective because: (a) it had not been served on them as landlord; and (b) it had not been properly served in accordance with the terms of the lease. The defendants argued conversely that the notice was accepted by the managing agent acting for the landlord and that the agent had specifically stated that they were 'happy for [the tenant] to break the lease'. The landlords sought a declaration that the notice was invalid.

Peter Smith J refused to grant the declaration in favour of the claimants and held that the notice was valid and that the lease had therefore been terminated in accordance with the terms of the lease. They were thus estopped from denying the validity of the service. He reasoned that as the lease merely required the notice to be served on the landlord, not specifically addressed to him; so the fact that it was initially addressed to the 'wrong' landlord was not fatal to the tenant's case provided it was eventually served on the 'right' landlord.

One purpose

The judge approvingly quoted Lord Steyn in Mannai Ltd v Eagle Star Insurance Co Ltd [1997] UKHL AC 749 in overturning the decision of the Court of Appeal: 'It is important not to lose sight of the purpose of a notice under the break clause. It serves one purpose only: to inform the landlord that the tenant has decided to determine the lease in accordance with the right reserved.

'That purpose must be relevant to the construction and validity of the notice. Prima facie one would expect that if a notice unambiguously conveys a decision to determine a court may nowadays ignore immaterial errors which would not have misled a reasonable recipient.'

The purpose of the notice, then, is to inform the landlord of the tenant's intention. If that intention is clear, minor inaccuracies or slight breaches of the agreed form can be 'overlooked.' The test is what a 'reasonable recipient' would consider the purpose of the notice to be. It is thus an objective test. Following Mannai courts can overlook immaterial errors if the content of the notice is clear to the mind of this 'reasonable recipient'.

This changes the traditional pre-Mannai position where virtually any breach of the service provisions of an individually negotiated lease would be deemed ineffective. This continues the broadly purposive outlook of the higher courts in recent years where there is generally an intention to give a result that bears resemblance to commercial reality and to the minds of the parties involved.

What this has done though, as can be seen from the many cases post-Mannai, is to potentially create an element of uncertainty, whereas before matters were arguably more certain. This is possibly an inevitable trade-off. Rules with regard to service that are enforced with rigour and absolute fullness may be harsh but at least they bring certainty '“ which, of course, has many commercial advantages.

The boundaries of what may be considered minor or immaterial may need further visits to our highest courts before lawyers feel comfortable in advising on precisely what might constitute valid service in this context.

Word power

It may also stand as an important reminder of the power of a managing agent (or potentially other professionals acting on behalf of a principal as an agent) to bind the principal into a situation that the principal might not want to be bound to. The implications of this are clear to all.

Finally, the principle confirmed above also appears to be applicable to other notice requirements; for example, rent review or termination clauses. The case demonstrates the need for caution and care in the use of words, especially when using email as an 'instant' means of communication.

A conscientious manager might reply to an email as a matter of due course only to find that they had compromised their client in to accepting the break or termination by an inopportune choice of word. The importance of a carefully drafted service clause remains as important as ever.

Lawyers representing landlords might look to Rennie v Westbury Homes (Holdings) Ltd [2007] EWHC 164 (Ch) where an 'indispensible condition' was considered before the 'reasonable recipient' test was applied. It found that if the content of the notice is an indispensible condition then the notice must contain that specified information, the omission of which will invalidate the notice.