Commercial lease – business tenancy – break clause – conditions – non-compliance with requirement – tenant’s notice wrong & invalid – tenant’s solicitors drafted and served the defective notice – potential negligence claim by tenant against its solicitors – Friends Life Ltd v Siemens Hearing Instruments Ltd  EWCA Civ 382
Long leases often contain a “break clause” which allows the tenant to end the lease early, usually by giving written notice to the landlord. For example, a 21 year commercial lease may contain a break clause allowing the tenant to terminate the business tenancy at the end of the seventh or fourteenth year.
When rental values are falling, as can happen during a recession, a break clause can allow a tenant to get out of what has become an expensive lease and into better-priced premises.
It is common for break clauses to provide that the tenant can terminate the tenancy only if he has complied with/satisfied a number of pre-conditions. Common pre-conditions provide:
- how notice must be given (usually in writing)
- when notice must be given (usually a specific number of months in advance)
- that the tenant must have complied with the lease covenants, particularly those concerning repairs and payment of rent and service charges
- the tenant has to be up to date with the rent.
The conditions are strictly enforced, meaning that tenants must comply with the conditions of a break clause to the letter. A landlord who does not want to lose a valuable tenant will therefore carefully scrutinise the lease and break notice to determine whether the tenant has complied strictly with the requirements of the lease, in the hope of preventing early termination.
If the tenant’s solicitors give wrong advice about what action the tenant needs to take to comply with any preconditions, or get the notice wrong, the consequences can be serious, particularly for the tenant’s solicitors, as the recent decision of Friends Life Ltd v Siemens Hearing Instruments Ltd  EWCA Civ 382 illustrates.
In 1998 the commercial tenant Siemens was granted a 25 year lease which included a break clause which it could exercise in 2013. The break clause said that any notice given by the tenant exercising the right to break “must be expressed to be given under section 24(2) of the Landlord and Tenant Act 1954”. The notice that the tenant gave, which was prepared by the tenant’s solicitors Manches, did not contain those words, although it complied with the clause in all other respects. The issue the court had to decide was whether the notice was valid.
The case was first heard in the High Court, which decided that the notice did not need to contain those words. The landlord appealed to the Court of Appeal which, overturning the lower court’s decision, commented:
“The clear moral is: if you want to avoid expensive litigation, and the possible loss of a valuable right to break, you must pay close attention to all the requirements of the [break] clause, including the formal requirements, and follow them precisely.”
The omission of the words meant that the break notice was invalid. As a result, Siemens remained locked into a lease the rent for which was £325,000 per annum, despite having moved to other premises. It will no doubt be looking to recover all additional expenditure paid to the landlord, including the landlord’s and its own litigation costs, which could be substantial, if it solicitors were negligent.
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