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It is highly important to get it right when serving notices by landlords or tenants. A2016 decision in England, Levett–Dunn v NHS Property Services Limited 2016 raises an issue in this regard. The tenant’s statutory predecessor in title was the tenant of three floors of a building pursuant to three almost identical leases each granted by the same four joint landlords. In each of these the four joint landlords were stated as having the same address. The lease provided for the purpose of services of notices the incorporation of section 196 of the Law and Property Act 1925 is not uncommon. Each of the leases contained a tenant’s break right and in 2012 the tenant sought to exercise its break rights in all three leases and served four separate break notices (one for each joint landlord) by recorded delivery to the address given in the leases (which happened to be the address of the fourth landlord).
The Landlord challenged the effectiveness of service on the following grounds:-
At the time the address given in each lease for the joint landlords was not in fact the place of abode or business for three of the four landlords. At that time only one of the four joint landlords had any real business connection with the address given; and
At the time the break right was exercised the fourth landlord was no longer a joint landlord. Even if it could be argued that notices had been served on him (because the address used was his place of business) they were ineffective as he was not a joint landlord at the relevant time.
The court held that service on the joint landlords at the address given on the leases was effective service stating that where the address had been given in the Lease it remains such a place for service until the landlord nominates some other address or the tenant acquires actual knowledge that it cannot be an address at which the landlord can be reached.
If a landlord fails to update a tenant as to a change in address “it is not unreasonable that any risk that the documents do not in fact reach him falls on him”
It does seem unfortunate that lawyers continue to find novel ways in which to create new break right precedents. It seems that in the post Brexit world this may become more pronounced where for example landlords are more likely to scrutinise break notices to find faults in order to preserve their existing rent regimes.
There are a number of ways to minimise exposure on break right problems. These include:
1. Know when a break can be exercised and allow time to prepare the notice and serve it
2. Instruct solicitors early to prepare and serve notices and advise on any conditions of the exercise to break – traditionally clients have been reluctant to do this.
3. Check all the legal documentation to ascertain if the lease has been varied; if there are any side letters; or as would have been helpful in Levett-Dunn whether there had been any notification to other parties of change of address.
4. Ensure that all arrears (including interest) that are known about and paid up to date (whether demanded or otherwise)
5. From the tenant’s perspective, ensure vacant possession is delivered on or before the break date. It is important not to carry out dilapidation works unless it is a specific condition or such works can be carried out long before the break date.
6. At lease drafting stage specify that service at the named address in the lease is valid service
7. During the term of the lease ensure that any changes of address for service are properly and correctly notified to the other party.
8. Check that the correct entity gives the notice and that the correct entity receives the notice
9. Avoid the need to rely on Mannai
Given the importance of break rights and the narrow way in which the valid exercise of such rights can be construed there can be dire consequences for getting it wrong (i.e. being stuck with an unwanted lease with all the associated liabilities attaching to it the end of term or the next break). In the current economic conditions it is crucial that parties try to ensure the validity and effectiveness of both the content and service of such notices.
This article has been produced for general information purposes and further advice should be sought from a professional advisor.
If you require any further advice in respect of the content herein please contact a member of our Commercial Real Estate team.