Key points

  • A break notice must be served on the person entitled to the immediate reversion
  • Care must be taken when an overriding lease has been granted to ensure that the notice is served on the correct landlord

Facts of Standard Life Investments Property Holdings Ltd v W&J Linney Ltd

In February 2004, the tenant, W&J Linney Ltd (Linney) was granted a lease for ten years. The lease contained an option to break in 2009. In November 2004, the landlord, Capita, granted another lease to Standard Life, for more than 100 years. The lease to Standard Life therefore took effect as an overriding lease, subject to the lease to Linney. From the grant of the overriding lease, Linney paid its rent to Standard Life.

Linney decided to exercise its break right and served a notice on Capita. It did not serve notice on Standard Life within the notice period required by the lease. Had the break notice been validly served?

The court ruled that it had not. Although Capita had been Linney's original landlord, the effect of the grant of the overriding lease was that Standard Life was now entitled to the reversion to Linney's lease.

Linney argued that, since the definition of "Landlord" in the lease included the person described as such on the face of the lease, as well as the person entitled to the reversion for the time being, the notice could be served on Capita. However, the court pointed out that the definition was expressed to apply "unless the context requires otherwise". Where the context is the giving of a notice to terminate the lease, the court ruled that the term "Landlord" meant the holder of the current reversion.

Since the only person on whom a valid notice could be served was Standard Life, the break had not been correctly operated.

Things to consider

If Linney's argument that it could validly serve a break notice on Capita was correct, it would be possible for a tenant to serve a break notice on its original landlord even after the building had been sold to a new reversioner. This would mean that the current landlord could have its income stream removed without its knowledge. Someone who was once the landlord but no longer is would have no interest in checking, for example, whether the conditions attached to the exercise of the break had been satisfied.

The argument is similar to that raised in Norwich Union Life & Pensions Ltd v Linpac Mouldings Ltd, where the original tenant claimed that it could still serve a break notice even after it had assigned the lease. Fortunately, in both Linpac and in the present case, common sense has prevailed.

It is important to obtain up-to-date copies of the reversionary title before serving a break notice. The position may have changed since the lease was granted. Legal title information should be checked against rent payment records and any discrepancies resolved before the notice has to be served.