The importance of serving a valid break notice cannot be underestimated. Failure to do so can result in your tenant client being locked into a lease for a number of years more than they had intended.
As panel solicitors for the Law Society of Scotland Master Policy, we have dealt with a number of claims where, despite an otherwise diligent approach to the instruction, a minor error on the part of the solicitor drafting the notice has led to a very expensive claim.
A solicitor tasked with serving a break notice on behalf of a client should be aware of the potential pitfalls that can present themselves, and take steps to avoid them.
Requirements of a break notice
The general purpose of a break notice is to notify the landlord that the tenant intends to exercise the break, in accordance with the terms of the lease.
The mechanism for doing so will depend on the wording of the lease, specifically the break clause.
There will be occasions where, due to the way the lease is drafted, there is ambiguity about the specific requirements of the break notice. The more recent cases on the subject, north and south of the border, have seen the courts ask what a reasonable person, with all of the background knowledge reasonably available to the parties, would have understood the clause to mean. Where there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense.
However, the prudent notice drafter should not count on being able to override the specific terms of the lease with business common sense. There may well be in the lease so-called “blue paper” provisions. If the lease provides that the break notice must be served on blue paper, then it would be no good serving it on pink paper – however clear the pink notice might make it that the tenant intends to terminate the lease. Whilst the courts have in many cases taken a more purposeful approach, it would be folly to ignore the need for blue paper, in the hope that, in the event of a dispute, common sense will be taken to prevail.
What can go wrong?
The following is not an exhaustive list of pitfalls, but examples of where apparent “failures” in serving a break notice have led to claims against the tenant’s solicitor.
• Failure to serve on correct landlord
This might seem a very basic point, but it should not be overlooked. It has formed the basis of a number of claims against solicitors. It is important to check the identity of the landlord and whether there has been any assignation or transfer of ownership about which the tenant client might not have advised you. A check of Registers Direct should be carried out. In the case of a corporate landlord, check with Companies House for change of names and registered office (if the notice requires to be served at the landlord’s registered office).
• Not properly served on behalf of the tenant(s)
Again, it might seem simple, but check who, in terms of the notice, is supposed to serve the notice. For example, an attempt to serve it on behalf of a company in the same group as the tenant might not be sufficient. Where there is more than one tenant, it should be made clear that the break notice is being served on behalf of both (on the assumption that you have instructions from both). As with the identity of the landlord, make sure that the tenant is properly designed and check the up-to-date company name and details.
• Incorrect method of service
If a notice requires to be served at the landlord’s registered office, it will not be sufficient to serve it at the premises. Similarly, a notice which requires to be served by recorded delivery will be arguably invalid if served by email (even if previous communications with the landlords have been via email). If there is any ambiguity about the method of service, or place of service, send multiple notices – by each potential method and to each potential address and recipient.
• Failure to comply with ancillary requirements
A lease might require that, for a break to be effectively exercised, the tenant must fulfil another obligation, such as payment of a specified sum or remedying any outstanding breaches/repairs.
In one case, the lease provided that the notice must be “accompanied by” payment of a particular sum. The solicitor served the notice, on the basis that the payment would be dealt with by the client separately. The landlord argued that the notice was not “accompanied by” the payment and so was invalid. The solicitor faced a significant claim from the tenant client.
Some tips to avoid the pitfalls
1. Build in time to prepare
Make sure you have enough time to draft a valid notice properly, and to carry out the investigations, and any other work, to allow you to do so. If you are acting for the tenant in drafting the lease, there can be benefit in diarising, sufficiently well in advance, the date on which the break notice requires to be served – even better, make it clear that the client is the one operating the diary, not you and that you will need instructions, say four to six months in advance. If the break notice requires the tenant to have complied with certain obligations prior to serving the notice (for example, the obligation to complete repairs), then time should be built in to ensure this can be complied with.
At the point of finalising the lease, the client tenant should be clearly advised of the break date and notice requirements and the timescales involved.
2. Read the lease. Then read it again.
There is no shortcut to this. Make sure that you have the full lease and any other accompanying documentation (such as assignations etc). Look out for the strict requirements and then comply with them. Do not just rely on a “business common sense” approach. Prepare a checklist of what the lease requires you to do. Then make sure you adhere to the checklist.
3. Carry out checks on the proper designation of parties
On the assumption that the notice is to be served on the current landlord, check with the client, and with Registers Direct, what is the correct designation of the landlord. Check with Companies House for any change of name/address.
4. If in doubt, serve multiple copies of the notice
If there is doubt about on whom/where/by what method the notice should be served (e.g. whether it should be served at the landlord’s registered office or the premises), serve multiple notices.
A solicitor underestimates the importance of this task at their peril. It should not be rushed and no assumptions should be made.
Whilst even the most diligent tenant’s solicitor cannot guarantee that a landlord will never take issue with the validity of a break notice, by following good practice the solicitor can reduce the risk of this leading to a professional negligence claim against them.
Anne Kentish and Colette Finnieston of Clyde & Co co-authored this article for Lockton