Questions about the interpretation and conditions attached to contractual notices have produced a great deal of litigation, particularly in the context of the operation of break clauses in commercial leases.
It has been established for some time that a party wanting to exercise a break option in a lease should do so in strict compliance with the requirements in the lease. One of a number of authorities where this principle was applied is the case of Mucklow (Birmingham) Limited v Metro-Cammell Weymann Limited (1994) EGCS 64. In this case, the tenant was granted a lease of a commercial unit for a term of six years with an option to break at the expiry of the third year of the term by serving on the landlord written notice of not less than three months.
The tenant wrote to the landlord after one year and three months from the commencement of the term and confirmed that “we will be exercising the rights to break at the earliest opportunity in line with the agreement we have with you. Perhaps you would let me know the timescale for this”. The letter was sent to a property agent at the landlord’s parent company.
The Court held that for the tenant to exercise its right to break the lease, the service of notice must be in strict compliance with the terms of the lease. The tenant’s letter to the landlord was not valid. It merely served as a request for information and only indicated a future intention to exercise these rights.
The decision in Mucklow is in line with previous cases where the Court has strictly construed break clauses in leases and has confirmed that tenants or landlords wanting to exercise their rights to break a lease should ensure that they follow the lease requirements to the letter.
However, since the decision in Mucklow there have been a number of cases where this approach has been questioned, the most prominent of these being the case of Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] UKHL 19. The decision in Mannai has resulted in what’s referred to as the ‘Mannai Principle’.
The Mannai Principle includes the notion that minor defects in unilateral contractual notices will not necessarily invalidate the notice if the reasonable recipient, with knowledge of the factual and contextual background, is capable of understanding the serving party’s intention.
Mannai concerned a break clause in a lease. The tenant had a right to break the lease by “serving not less than six months’ notice in writing… to expire on the third anniversary of the term commencement date”. The notice served by the tenant stated that the termination date was 12 January 1995. The third anniversary date that should have been stated, however, was 13 January 1995.
The House of Lords overturned the Court of Appeal by a narrow majority and held that the notice was effective. The House of Lords decided that, even though there was an error in the notice, the notice was otherwise clear and unambiguous, and left the landlord in no reasonable doubt about the tenant’s intention. To have held that the notice was invalid would have been too strict.
Whether Mannai will assist to save a defective notice will turn on the facts of each case. However, as a practical solution, where the sender of a contractual or statutory notice becomes aware of an error contained in the notice, a further notice can be served without prejudice to the contention that the first notice is valid, making it clear that the sender still intends to rely on the first notice. If the first notice is held to be valid, the second notice will be ineffective. If the first notice is invalid, the sender can rely on the second notice.
A failure to comply with the provisions of a break clause can of course be a costly error. It is therefore prudent to seek legal advice in good time before the break date if there is any uncertainty so as to not get caught out.
If you require advice or assistance on a dispute over the exercise of a break clause, please do not hesitate to contact Ben Jones, a property litigation partner in our Truro Office on 01872 265100.