The recent English case of MW Trustees Ltd and others v Telular Corporation [2011] EWHC 104 (Ch) examines the situation where a tenant does not serve a break option notice in accordance with the service provisions contained in the lease and the effect on the validity of that notice.

Background

Telular Corporation was the tenant under a ten year lease. The lease contained a break option clause which entitled Telular to terminate the lease on 1 March 2010 provided it gave six months' written notice and paid the rent due up to that date. Service of the notice was governed by the notice clause in the lease which stated that notices must be in writing and served by special delivery or by hand to the landlord's registered office. The current landlord, MW Trustees Limited, held the freehold interest in the property as trustees of a pension fund and delegated the management of the premises to managing agents. Telular had been notified of the position at the time in 2008.

Telular served the break notice by special delivery on 10 August 2009. However, it was sent to the previous landlord which erroneously informed Telular that the property had been transferred to Mattioli Woods. Mattioli Woods was in fact MW Trustees' managing agents. Telular then emailed one of the beneficiaries of the pension fund referring to the break notice and the proposed termination of the lease and was advised that the managing agents would be in contact. On 17 August 2009, Mattioli Woods emailed Telular confirming that it accepted the letter forwarded to it by email and it was happy for Telular to terminate the lease. Mattioli Woods asked that the break notice letter be re-addressed to MW Trustees. Telular claimed to have prepared the replacement letter but there was no evidence of it having been sent or received.

What constitutes validity?

MW Trustees argued that the original notice was ineffective as it had neither been addressed to, nor served on it. Telular was in agreement on this point. The subsequent email on 10 August 2009 was also ineffective as it was again not addressed to the MW Trustees and service of the notice did not comply with the terms of the lease.

The issue facing the Court was one of fact: the Court had to determine whether or not, given the terms of the managing agents' email on 17 August 2009 on behalf of MW Trustees, MW Trustees was entitled to challenge the validity of the break notice. The Court started its analysis of validity of break options by considering the House of Lords decision in Mannai Ltd v Eagle Star Insurance Co Ltd [1997] AC 749 which is the leading authority. The case states that an objective approach must be adopted when determining the construction of the notice and a key issue is how a reasonable recipient would have interpreted the notice. The Court also followed an earlier decision in Townsend Carriers Ltd v Pfizer Ltd [1977] 33 P&CR 361 where the conclusion was that a reasonable recipient would not have been misled if notice was addressed to the wrong person.

The Court applied the objective tests to the facts of the present case.

Furthermore, the managing agents' use of the word "accept" in its email on 17 August 2009 to Telular had to be construed as constituting acceptance that the notice attached to the email demonstrated Telular's intention to terminate the lease on 1 March 2010. The Court ruled that MW Trustees was estopped from subsequently challenging the validity of the break notice or, alternatively, it had waived the requirement for the notice to be served in the way specified by the lease as a consequence of the wording of the email on 17 August 2009.

The Court found that Telular had been entitled to act on the basis that the landlord was not rejecting the notice, given the response of the managing agents on MW Trustees' behalf.

Commentary

To avoid successful challenges to the validity of the service of a break notice, it should be executed in strict accordance with the terms of the lease. The party exercising the break option should comply with the terms of the break option clause in the lease, all conditions set out in it, and the service of the notice should also be in accordance with the notice provision within the lease. Background information is also essential when serving a break notice. In this case, Telular had been advised of the change of landlord but the individual responsible for issuing the relevant notice appears not to have been aware of the change.

This case demonstrates that there are certain circumstances where a defective notice may be saved where a recipient of such notice, with a sufficient knowledge of the situation, would not be confused by the error in the notice.

A key factor in this decision was the response of the landlord's agent. If the landlord's agents had simply acknowledged the notice, it may have been open to MW Trustees to challenge the break notice. There is no obligation on a landlord to advise a tenant that it is of the view that a notice has not been validly served. The case highlights that if a defective break notice is received and the recipient does not wish to accept the notice, the recipient should be very careful as to how it responds to such notice and not give any indication that the notice is accepted despite its defects. An incorrectly worded response to a defective notice by the recipient may unintentionally waive the notice requirements or result in the recipient being estopped from successfully challenging the validity of the notice.

To read the decision in MW Trustees Ltd and others v Telular Corporation click here.