Breaking up is hard to do

12 Feb 2018

The case of (1) Sackville UK Property Select II (GP) No.1 Ltd (2) Sackville UK Property Select II Nominee (the Landlord) (1) Ltd v (1) Robertson Taylor Insurance Brokers Ltd (Robertson)(2) Integro Insurance Brokers Ltd (Integro) is yet another case relating to exercising a break option in a lease. It is a useful reminder of:

  • Whether the assignee of a lease can successfully exercise a break option before effecting registration of the assignment
  • When the law of agency can be used to save a break notice served on behalf of the wrong party.

Case facts

The facts of the case are as follows:

  • The Landlord granted a 10-year lease (the Lease) to Robertson in 2013
  • The Lease contained a break option allowing the "Tenant" to terminate the Lease by giving not less than nine months' prior written notice
  • "Tenant" was defined in the Lease as including the Tenant's successors in title and any party in whom the lease might be vested "by whatever means"
  • The Landlord granted Robertson licence to assign to Integro in March 2017. This licence contained a covenant by Integro to apply to register the assignment within ten business days of completion of the assignment
  • Both Integro and Robertson were part of the same group of companies
  • A break notice was served on the Landlord on behalf of Integro on 2 May 2017. The covering letter stated that the solicitors were instructed on behalf of Integro being the tenant under the Lease
  • The solicitor intended to serve the break notice on behalf of Integro mistakenly assuming that the assignment of the Lease did not need to be registered at the Land Registry
  • The solicitor was instructed to serve the break notice by an individual who was a director of both Integro and Robertson. Evidence was adduced that this director wanted notice served to terminate the Lease and he left the solicitor to decide "what he needed to do".
  • The assignment was registered in July 2017
  • The Landlord sought a declaration that the break notice was invalid. It argued that, prior to the assignment being registered, Robertson remained the legal tenant so any break notice had to be served by Robertson.

The court considered:

  • If the break notice was invalid as it had been served on behalf of Integro (in particular considering the definition of "Tenant" in the Lease).
  • Whether it could be argued that the break notice had been given on behalf of Robertson.

Decision

The Court confirmed that the break notice should have been served by Robertson. Until registration, the Lease remained vested in Roberston (albeit held on trust for Integro) and hence Robertson remained the Tenant as defined by the Lease.

The break notice was not given on behalf of Robertson. It was clear from his evidence that the solicitor intended to give notice on behalf of Integro and that the director who instructed the solicitor did not say whether he intended the notice to be served on behalf of Integro or Robertson. For the decision to be otherwise, Integro would have needed to establish that Robertson (as an unidentified or undisclosed principal) should be able to take the benefit of the solicitor's act ie as serving the break notice on its behalf. The court confirmed that in order for Robertson to take the benefit of the solicitor's act either the director or the solicitor must have intended the notice to be given on Robertson's behalf. On the facts, this had not been established and hence the break notice had not been given on behalf of Robertson.

Comment

It is surprising that this decision might have been different if either the director or solicitor acting on behalf of Integro had in fact intended the notice to be served by Robertson (despite that intention not being communicated to the Landlord). Only a very slight change in the evidence as to what the solicitor subjectively intended to do might therefore have rendered the notice valid, but the position would have been exactly the same from the Landlord's perspective.

However this case once again highlights the importance of ensuring break notices are served on behalf of the correct party. If in doubt a break notice should be served on behalf of all potential tenants; care should be taken to identify the current registered proprietor of the leasehold interest and ensure notice is expressly served by and on behalf of that registered entity.

Attributed to Louie Gough, Paralegal