Break Clauses: the importance of precision

Commercial Property highlight the fundamental importance to landlords and tenants of complying with the strict requirements relating to the form, content and service of a break notice when seeking early termination of a commercial lease.

The party seeking to exercise the break option must carefully consider and satisfy the pre-conditions stipulated in the lease. A break option is often expressed to be exercisable on a fixed date, rather than on a rolling basis, and therefore an invalid break notice may result in the loss of the opportunity to terminate the lease until the next contractual break date, or the end of the contractual term, which may be several years later. The financial consequences of an invalid break notice may be significant.

The seminal decision in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd (“Mannai”) established the principle that a notice must be clear, unambiguous and in a form which would leave a reasonable recipient of the notice in no doubt as to the intended effect (known as the ‘Mannai principle’). A minor error in a break notice may not, therefore, be fatal dependent on the facts, applying the Mannai principle, where the meaning of the notice is still properly conveyed.

It must be underlined, however, that the Mannai principle will not remedy a failure to comply with a prescribed requirement as to the form of the break notice. The position is famously summarised by Lord Hoffman in Mannai that “if the clause had said that notice had to be on blue paper it would be no good serving it on pink paper…”

In Claire’s Accessories v Kensington High Street, the lease specified notices were required to be served at the registered office of the tenant company. The landlord instead served a notice on the tenant’s employees at the premises and the notice was consequently held to be invalid.

The key message to landlords and tenants is to carefully read the break clause, and the lease as a whole, to ensure the break notice is drafted in the correct form. One other fundamental consideration, is to ensure the parties in the notice are correctly identified. In the more recent judgement of Vanquish Properties (UK) Limited Partnership v Brook Street (UK) Limited), a break notice purported to be served by a limited partnership, rather than the individual partners, was held invalid, on the basis a lease is not capable of vesting in a limited partnership, which has no legal existence.

Any requirements relating to the service of the notice must also be strictly complied with and the parties should also bear in mind that a break notice cannot be withdrawn, unless the recipient of the notice consents to the withdrawal.

The above should not be relied upon as a substitute for taking legal advice. If you require further assistance, please contact Ashtons.