In Friends Life Limited v Siemens Hearing Instruments Limited [2014] EWCA Civ 382, whilst the notice given by the tenant made reference to the break clause in the lease, it did not specifically state that notice was given under s24(2) of the Landlord and Tenant Act 1954 (“LTA”) as was required by the terms of the lease. This requirement stemmed from the prevailing view at the time the lease was drafted that a tenant might be able to serve a break notice and then make an application under s26 LTA for a renewal lease to achieve more favourable lease terms; a position rejected by the courts in the late 1990’s. Therefore, at first instance, although the notice did not comply with the specific requirement to refer to s24(2) LTA, the High Court held that notice was nevertheless valid as the reference to s24(2) LTA was no longer required. Yet on appeal, the Court of Appeal disagreed and held that the break notice was ineffective.

The basis of the Court’s decision was that since a break clause gives one party the option to terminate the lease unilaterally, it must be in exact observance of the terms of the lease for it to be binding. The Court referred to Lord Hoffman’s illustration from Mannai Investments Co Limited v Eagle Star Life Assurance [1997] AC 749 in terms of the level to which a break notice may be required to comply in order to be valid: “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 the tenant wanted to terminate the lease”. Overall, in respect of unilateral contracts (which is what a break clause is), the Court stated that substantial compliance alone is not adequate: if a purported exercise of a break option does not satisfy both the formal and substantive provisions of the terms, it is ineffective.

In addressing the point of compliance, the Court again turned to the case of Mannai where an incorrect date stipulated in a break notice was nevertheless held valid; the distinction between Mannai and Friends being the wording used within the break clause. In the latter case, the clause specified that the notice “must be expressed to be given under section 24(2) of the Landlord and Tenant Act 1954” (emphasis added). The use of the word “must” was held by the Court to be emphatic and imperative. In Mannai, as there was no requirement to specify a date, the incorrect date did not invalidate the notice.

Quite obviously the implication of Friends is that in exercising a break option, extremely careful attention must be paid to the wording of the lease and form of notice required. When drafting a break notice, one should review the break clause and strictly adhere to any conditions, especially those prefaced with the words “must” or “shall”. Any failure to comply with the stipulated requirements of the notice, irrespective of how ludicrous or seemingly non-essential, could lead to a challenge which, based on Friends, appears more than likely to succeed.

To avoid any doubt, parties might consider annexing the form of break notice to the lease in order to simplify matters and avoid what might become a costly mistake.

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