Commercial Property e-Brief – Waive goodbye to your tenant?

In these difficult economic times, landlords are increasingly scrutinising the wording of a break clause in an attempt to deny their tenants the opportunity to terminate their leases early.

Much guidance has been given to tenants on how to ensure the effective operation of their break options. A recent High Court decision, however, demonstrates that a landlord’s conduct can prevent it from challenging a tenant’s break option, even if the option is defective.

MW Trustees Limited and others v Telular Corporation

The lease in question was for a term of ten years with a tenant’s option to break the lease on giving six months’ written notice to the landlord to be sent by special delivery or by hand.

The tenant served its break notice which was defective as it was sent to a previous landlord.

The tenant sought to rectify the defect by forwarding a copy of the original notice to the new landlord who sent it on to its managing agent. The agent then replied to the tenant saying “we accept the notice and we are happy for you to terminate the lease”. There was no further correspondence between the parties until the break date approached and the landlord was facing the prospect of an empty property.

All is not lost?

The parties agreed that the first notice was ineffective because it was addressed to the previous landlord. The second notice was equally ineffective because it was still addressed to the previous landlord and was sent by e-mail to the current landlord (this was not in accordance with the notice provisions in the lease). Ordinarily, the break would not have operated as no valid notice had been served. However, the tenant argued that the managing agent’s e-mail had waived the defects as it had confirmed that the break notice had been accepted.

Waiver of requirements

The judge agreed with the tenant that the landlord’s conduct had effectively waived the requirement for the notice to be served in accordance with the provisions in the lease. Therefore, it was held that the Landlord had lost its right to challenge the validity of the tenant’s break notice and the tenant could rely on the notice and break its lease on the break date.

Lessons to be learnt

Landlords need to be wary when they receive a clearly defective break notice and not simply assume that the break will not operate. On receipt of a tenant’s break notice, Landlords should bear the following tips in mind:

• Landlords need to be very careful how they respond to a defective break notice as they might inadvertently waive the requirements of the lease which could prevent them from challenging the validity of the notice.
• Landlords are not obliged to acknowledge receipt of a break notice and it may be safest if they do not formally acknowledge receipt at all. If receipt is to be acknowledged, landlords should only confirm that they have received the notice. They should avoid any implication that they consider the break notice to be valid and/or that the lease will be brought to an end by the notice.
• Landlords and managing agents should liaise closely to ensure any break notice is correctly acknowledged.
• A landlord’s solicitor can provide advice as to whether a break notice is valid and, if so, how a landlord can ensure that a tenant complies with any conditions that may attach to the break.

If you would like to talk to someone about a break notice you have received and the steps you should take, please contact a member of our commercial property team.