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Breaking up is hard to do

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28/07/2014

The Mannai [1] case in 1997 made it clear that substantial compliance with a break notice was not sufficient, both the formal and the substantial elements must be adhered to. Mannai involved a break notice which included an incorrect date. In fact, the break notice was held to be valid because there was no express requirement to specify a date, so the wrong one did not invalidate the notice.

That was not the case in the recent decision, Friends Life Limited v Siemens Hearing Instruments Limited [2]. Here the break clause stipulated that the notice “must be expressed to be given under section 24(2) of the Landlord and Tenant Act 1954 [the Act].” The requirement is a historic one where it was once considered possible for a tenant to break a lease and then seek a new one on more favourable terms under section 26 of the Act. Expressing the break notice to be under section 24(2) prevented that, but the court cases in the 1990s put an end to the practice as well, leading the High Court in Friends Life to consider it was not strictly necessary and should not render the break notice invalid. The Court of Appeal disagreed. The requirement was that the notice “must be expressed” to be under section 24(2) and failure to follow clear express stipulations, however redundant or unnecessary, rendered the notice invalid.

So, tenants, get your coloured paper ready! Friends Life encourages landlords to inspect the minutiae of the break clause and notice to assess its validity. In recent years, tenants have been in an increasingly stronger bargaining position, but landlords need not allow any wriggle room for a break notice that omits any (non essential or otherwise excusable) express requirement.

Another case in front of the Court of Appeal just a few short weeks after the Friends Life decision, allowed the Court to support it renewed pro-landlord approach.

In Marks and Spencer plc v BNP Paribas [3] the tenant exercised the break clause to terminate the lease early and sought a refund of the payments it had made in advance which related to the period after the break date [4].

Prior to this case, it was accepted law that a tenant would only be entitled to a refund of rent paid in advance which related to the post-break period if there was an express term to that end in the lease. The tenant argued in BNP Paribas that, as a point of principle, a tenant should only pay under a lease for that which he actually receives, and as such the lease should be construed to include an implied term entitling the tenant to a refund. The High Court agreed with that argument. Fortunately for landlords, the Court of Appeal did not.

The case itself was a classic implied terms dispute and both courts applied the rules to the facts; what would a reasonable person have understood the parties’ intentions to be, given the background knowledge reasonably available to the parties at the time they entered into the contract? They came to different conclusions, however. The Court of Appeal decided that, against the relevant background, the lease would not reasonably be understood to include a term that entitled the tenant to a refund of the rent it had been paid in advance. The parties would have understood that if the rent was paid in advance, there would be rent attributable to the period beyond the break date that the tenant had no benefit of. If the parties had intended for the rent to be repaid to the tenant, an express clause to that effect would have been included. In short, there is no general principle that the tenant should only pay for what he receives.

The Court of Appeal has reasserted the widely accepted view that in the absence of an express provision, the tenant should not be repaid for rent paid in advance past the break date. The High Court decision threw the approach into confusion, but its decision was based on specific facts and the Court of Appeal has drawn a line under it.

Two recent decisions heralding a swing in favour of the landlord. For more advice, contact Martin McKeague.

[1] Mannai Investments Co Limited v Eagle Star Life Assurance [1997] AC 749
[2] [2014] EWCA Civ 382
[3] Marks and Spencer plc v BNP Paribas Securities Trust Company (Jersey) Limited and another [2014] EWCA Civ 603
[5] Including rent, service charge, car parking charges and insurance charges. The High court decided on the service charge; the Court of Appeal was required to deal with the rent and other payments

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