It may seem like stating the obvious that a tenant should know who its landlord is, but confusion surrounding the precise identity of the landlord has been the subject of litigation in recent years both north and south of the border.

The latest example of this is the recent case of Standard Life Investments Property Holdings Ltd v W & J Linney Limited [2010] EWHC 480 (Ch) (reported in July 2010), another example which illustrates the importance of a tenant knowing the identity of its landlord. Here, the tenant, W & J Linney Limited served a break notice in order to terminate its lease. However confusion arose as to the identity of the landlord due to an overriding lease that had previously been granted by Linney's landlord.

How the confusion arose

In February 2004 Linney took a sub-lease of premises for ten years with a break option at five years. Their landlord at that time was Capita Trust Company Limited.

In November 2004, Capita granted an overriding lease of the property of which the premises formed a part to Standard Life Investments Property Holdings Ltd. The overriding lease was for a period of almost 120 years, namely the whole period of Capita's lease other than the final three days. Subsequently, rent was demanded by Standard Life and was payable by Linney to Standard Life. In addition, landlord's consent to alterations was granted by Standard Life. However, when it came to the exercise of the break option, Linney served notice on Capita rather than Standard Life.

But, as a matter of law, were the communications by Linney effective to determine their lease?

The notice of the intention to exercise the option was sent prior to the deadline of 3 August 2008, as stipulated by the relevant clause in the lease. The notice was addressed to Capita.

On the same day a copy of the notice was sent to Jones Lang La Salle who were erroneously referred to as Capita's agents. In fact, they were Standard Life's agents.

The arguments put forward on behalf of Linney were that Capita was defined in the lease as the landlord and this applied notwithstanding the existence of the overriding lease; and that the service on Standard Life's agent was good service and the reference in that letter to Capita "was an obvious mistake".

Notice to whom?

In considering this matter, the court considered the construction of the lease in the context of asking who would the reasonable man have understood the landlord to be (having regard to all background knowledge available to the parties)?

The court held that Standard Life was the only person on whom the break notice could validly be served, and that to suggest otherwise would not make commercial sense. The landlord for the purposes of the lease has to be the landlord for the time being. This is more obvious in relation to receiving rental payments and giving consents, but applied equally to the notice to exercise a break clause. In support of this, the judge noted that vacant possession (a precondition of the right to exercise the break option) could only be given to the immediate (and not to the superior) landlord.

The definition of the "Landlord" in the lease was "party so described at the head of this lease and, where the context so admits, the person for the time being entitled to the reversion immediately expectant on the determination of the term". This could not be read to mean either Capita or Standard Life, nor could it be intended to be interpreted that the landlord be the holder of the reversionary interest. The court stated that "where the words of a contract flouted business common sense they should be made to yield to business common sense". Further, it stated that a contract clause should not readily be construed as being contrary to the norm, solely on the basis of minor differences in the language used.

The court also held that service of the break notice on Jones Lang La Salle did not amount to service on Standard Life. There was no evidence that Standard Life had delegated to Jones Lang La Salle the role of accepting service of such notices on their behalf. The notice itself was unambiguous in its terms, and had Jones Lang La Salle checked the lease, they may have formed the view that Capita was the party on whom the notice ought to have been served and that the copy had simply been sent to them in error. Neither communication served to notify Standard Life as current landlord of the tenant's intention to exercise the break clause.

Conclusion

This case follows a series of recent judgements in which the courts have punctiliously construed break clauses in leases. The decision is detrimental to the interests of Linney who, in consequence, are obliged to comply with the lease for a further period of five years. The court, however, took the view that given the serious consequences of a break clause, it is important to provide certainty in the adherence to what is contractually agreed between the parties.

To read the decision in Standard Life Investments Property Holdings Ltd v W & J Linney Limited click here.