When we act for occupiers one of their many concerns is the long winded approach to the lease document they are about to sign. Leases can often be fifty pages long and sometimes require an understanding of grammatical gymnastics. However a Court of Appeal case has recently identified how important the constituent words are – even the small ones.
The case of Siemens v Friends Life concerned a break clause – obviously a very important clause to both parties – for the Landlord if the break is not effected correctly then the Tenant remains on the hook for rent, rates and service charge contributions until the opportunity to leave arises again either via another break or expiry, which the Landlord may like – unless the landlord served the notice as he wanted to redevelop and has now had to forgo that opportunity. For the tenant a break notice will have been operated for very good reasons – its failure and the impact of a continuing lease, an event often coupled with a rent review, could be disastrous.
In Mannai Investment Co v. Eagle Star Life Assurance , Lord Hoffman famously said of a tenant’s break notice: “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”. Everyone knew where they were – get the break notice absolutely correct or face the circumstances.
In the Siemens case, the High Court judge created some uncertainty by ruling that apparently mandatory conditions in a break option could be ignored if they were not important to the other party. The Court of Appeal stressed that a break right is an option and therefore a “unilateral” or “if” contract. Here, the landlord effectively promised that the lease would end if the tenant exercised the break. The Court of Appeal said that there wasn’t any room for the notion of ‘substantial compliance’ with conditions in an “if” contract. Therefore the break notice was invalid.
This is a clear reminder of the importance of absolute compliance with break clauses. In Lord Justice Lewison’s words, “you must pay close attention to all the requirements of the clause, including the formal requirements, and follow them precisely”.
IF, in this case, was of huge importance….