In November this year the White Paper Conferences Company held a day-long meeting for business professionals in the property industry. The theme of the day was: shaping new law relating to commercial property leases into solutions for clients.
Part of the day's discussion predicated on the courts’ increasingly harsh decisions in recent cases concerning provisions for service of notices to terminate property contracts. Such provisions have long been a cause for litigation. In a 1997 House of Lords decision (Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd) a notice with the wrong expiry date was found to be valid on the basis the recipient clearly understood the intention of the notice. Fast forward to 2018 and that lenient position has been distinguished – now, any misfortune in the service of a notice could be disastrous.
Take this year’s example in Ropemaker Properties Ltd v Bella Italia Restaurants Ltd. The parties entered into a conditional agreement for lease which allowed the tenant to terminate the agreement once the long stop date had passed without a condition being satisfied. The contract contained provisions which made it clear that in these circumstances either the landlord or the tenant could at any time after the long stop date “give written notice to the other and the tenant’s guarantor” to terminate. The notice provisions in the agreement specified exactly how hard copies of notices had to be served and prohibited service of notice by email or fax.
At a board meeting, at which directors of the tenant and the tenant’s guarantor were present, it was agreed that the tenant would terminate the agreement for failure to satisfy the condition in question by the long stop date. The tenant subsequently served a notice to that effect on the landlord but did not serve a termination notice on the tenant’s guarantor. Although the tenant and its guarantor were group companies, and the guarantor was aware (through board minutes) of the notice having been given to the landlord, the court held that the terms of the agreement for service of notice had not been followed. The court allowed the landlord’s claim that the tenant’s termination notice was invalid. As the tenant had therefore failed to give an effective termination notice, the court confirmed that it remained open for the landlord to waive the condition (which the landlord had done after receiving the tenant’s invalid termination notice) and render the agreement for lease enforceable.
This decision appears particularly harsh – commercially, it made no difference to the landlord whether the tenant gave a termination notice to the tenant’s guarantor. The court, while conscious that failing to serve a separate (hard copy) notice on a group company of the tenant was a “technical and unattractive basis” on which to invalidate that notice, refused to deny the strict terms of the agreement. The judge added that it made no difference that the requirements were substantially complied with or had no apparent purpose or benefit.
It can be appreciated that requiring the landlord to serve a termination notice on the tenant’s guarantor makes sense. However, what is the purpose of a requirement for the tenant to do the same? Presumably, this was not the parties’ intention and the court made its decision to emphasise the importance of looking at the drafting of notice provisions and ensuring strict compliance with them. This is something, therefore, that parties should be wary of when negotiating and exercising these provisions.
" 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..." Lord Hoffmann in Mannai Investment Co. Ltd v. Eagle Star Assurance (1997)