To terminate a lease effectively, the landlord or tenant who wishes to bring the lease to an end must give effective notice of their intention to the other party. Even where the lease specifies an end date, the party seeking to terminate must serve a notice to quit on the other party to bring the lease to an end. If neither the landlord nor the tenant serves a notice to quit, the lease will be automatically extended for a further period under the principal of tacit relocation.

Effective notice required

It is therefore important that parties wishing to terminate a lease ensure they serve an effective notice to quit, to avoid finding themselves tied into an unwanted lease for a further period. If the lease does not specify an end date or notice period, it is assumed under common law that the last day of the lease (the "ish") will be the day preceding the anniversary of the date of entry, and the notice to quit must be served at least forty days before this date. The date of service and the termination date itself should be excluded in calculating the forty days.

There is no prescribed form of notice to quit for commercial leases, but the notice must convey unambiguously a party's intention that they no longer wish the lease to continue, and the date the lease will terminate. The Scottish courts have previously adopted a strict approach to validity of notices to quit. For example, in Signet Group plc and C & J Clark Retail Properties Ltd [1996] SC 444, the court held that a notice which was sent on the fortieth day before the ish was one day late, as it did not provide forty days clear notice, and so was invalid. The courts have also adopted a strict approach to notices which contained ambiguities or inaccuracies. In particular, the courts have been critical of notices to quit which did not specify an accurate date of termination.

A move towards more flexibility?

However, in the recent case of McDonald v O'Donnell [2007] CSIH 74, the Inner House of the Court of Session appear to take a more flexible approach.

Mr McDonald was the tenant of a property under a verbal lease with Mr O'Donnell. Mr McDonald leased the premises for the purposes of operating a riding school business. For most of the time, horses grazed on either the field used as the riding school or an adjacent field on which hay was grown for the horses' winter feed. The lease had commenced on 8 February 1989, and had continued from year to year on the basis of tacit relocation. The ish was therefore 7 February each year, and if no notice to quit was served prior to this date, the lease continued by tacit relocation. On 13 July 2004, Mr O'Donnell's solicitors served a notice to quit on Mr McDonald, notifying that the lease was to terminate as at 31 March 2005.

The first issue before the court was whether the lease was an agricultural lease under the terms of the Agricultural Holdings (Scotland) Act 1991. The court held that the nature of the lease should be determined by considering the predominant purpose for which the property was let. They found that the main purpose was for use as a riding school, which was a commercial enterprise. The grazing of the horses was an ancillary part of this commercial enterprise, and was not sufficient for the lease to be categorised as an agricultural lease. The lease was therefore a commercial lease.

The court then had to decide whether the notice to quit issued on 13 July 2004 was an effective notice. The tenant argued that because the notice required the tenant to vacate by 31 March, and made no reference to the ish (i.e. 7 February), it was ineffective. The court disagreed, and held that the notice only had to provide "overt intimation by either party that he did not consent to the prolongation of the lease". As Mr O'Donnell had given Mr McDonald more than six months notice of his intention to terminate the lease, he had clearly intimated that he did not want the lease to continue, and had prevented tacit relocation on the 7 February 2005. Although the wrong date had been quoted in the notice, the intention was unambiguous. There was no suggestion that the period of notice was insufficient, and as the specified removal date was later than the actual ish, the defender had not been prejudiced in any way by the error.

English test of the "reasonable recipient"

In this decision, the Scottish courts have taken a more flexible approach to the accuracy of notices to quit, which appears more in line with the approach of the English courts. Until Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749, the English courts had also taken a strict approach to accuracy in notices. In Mannai, the House of Lords introduced the "reasonable recipient" test, whereby in considering whether a notice was valid, the question to be asked was what a reasonable recipient, having knowledge of the relevant background, would understand the notice to mean. Therefore, even if the notice contained an inaccuracy, such as (in that case) a mistaken date of expiry, if the intention of the notice was nevertheless evident and unambiguous, the notice should be held to be valid.

However, in England the Mannai approach has led to a substantial number of cases debating what a "reasonable recipient" should be expected to understand. In Taylor v Crotty [2006] EWCA Civ 1364, it was held that while a mistaken date in a notice did not prevent the tenant having due notice of the intention to end the lease, it could lead to ambiguity as the tenant would not known which precise day he was to vacate.

Best practice

Despite the more flexible approach demonstrated in McDonald v O'Donnell, loosely drafted notices to quit may still result in disputes over whether a notice is valid, and certain key requirements – e.g. giving a sufficient period of notice – will still certainly need to be met. Best practice remains to ensure that a notice to quit is served in time, that it unambiguously expresses the intention not to continue with the lease, and that it specifies the correct date of termination.

The full text of the decision in McDonald v O'Donnell is available form the Scottish Courts website.