In an economic downturn tenants are more likely than ever to be reviewing their property requirements and keen to divest themselves of surplus premises. Break clauses can be a useful tool for tenants in this situation. In a difficult market, however, landlords will be equally keen not to let their tenants leave and so it is important that tenants take care to operate break clauses correctly.
Compliance with the provisions of a break clause can appear relatively simple but a recent decision of the High Court (Hotgroup plc-v-Royal Bank of Scotland plc) has highlighted the dangers of failing to consider all the terms of the lease.
In this case, Royal Bank of Scotland, as trustee for the SEPUT unit trust, was the long leasehold owner of a building, part of which was leased to the Claimant, Hotgroup Plc. Schroder Property Investment Management Ltd were property managers for the SEPUT unit trust. The lease contained an option to break in the fifth year on the giving of not less than nine months' notice to the landlord. The break date was 3 July 2009. The last day by which the break notice could have been served, therefore, was 3 October 2009.
The notice provisions in the lease stated that no notice would be deemed to be validly served on the landlord unless a copy of that notice was also served on Schroders. Notice was served on the landlord in September 2009. However, the copy notice was not served on Schroders until 3 December 2009.
It was held that the break notice had not determined the lease. The judge ruled that time was of the essence for both the break notice to be served on the landlord, and also the notice to be served on Schroders. If this were not the case, the commercial purpose of the notice provisions, being to ensure that the notice "does not gather dust in the landlord's offices but comes to the attention of the person with the actual responsibility for the management of the property", would be defeated.
The court concluded that although the Schroders' notice did not have to be served at the same time as the landlord's notice, it had to be served before 3 October 2009. Here it was not and, as a result, the break was ineffective.
This case highlights the importance to tenants of complying carefully not only with the terms of the break clause in the lease but also the mechanics of giving that notice.
The Law: Hotgroup plc-v-Royal Bank of Scotland plc
[2010] EWHC 1241 9(Ch), [2010] All ER(D) 280 (May)
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The original publication date for this article was 15/06/2010.