‘Breaking’ News – Do you have the right to serve a break notice?

For a tenant, a right to serve a break notice and end the lease early can be a useful, flexible tool. In order to validly operate the break right, a tenant must serve a notice on the landlord of its intention.

In this year’s case, Sackville Property Select II (GP) No.1 Ltd & Anor v Robertson Taylor Insurance Brokers Ltd & Anor [2018], the court looked at whether a break notice served by the assignee (the new tenant) was valid.

Right to Serve a Break Notice – Facts of The Case

In March 2013, the landlord granted a 10-year lease to Robertson. The lease contained a break right in the tenant’s favour. The lease could be terminated early on 14^th March 2018, if:

1. the tenant gave the landlord 9 months prior written notice;
2. on 14^th March 2018, the tenant was not in rent arrears;
3. on 14^th March 2018, the tenant gave vacant possession of the property.

The lease was registered at the Land Registry.

In March 2017, the lease was assigned from Robertson to Integro but the assignment was not registered at the Land Registry.

In May 2017, Integro served the break notice on the landlord “as the tenant under the lease”.

The court held that the break notice was invalid and should have been served by Robertson. In arriving at this decision, the court asked two questions:

1. By whom should the break notice have been served? It was held that until the assignment was registered at the Land Registry, the lease remained vested in Robertson who held it on trust for Integro. Until the assignment was registered at the Land Registry, Integro was an equitable assignee and was not the legal tenant under the lease.
2. Was the break notice given by or on behalf of the former tenant (Robertson)? There was no evidence to support this. The break notice was served by Integro’s solicitors. There was no intention for the break notice to be served on behalf of Robertson, and the Landlord could not reasonably have realised that the break notice was served on behalf of Robertson.

Right to Serve a Break Notice – Tips & Comments

To add to the never-ending considerations and conditions that need to be well thought out when exercising a break right, you should always consider whether you have the right to serve the break notice in order to validly operate the tenant’s break right. If you are the recipient of an assignment (i.e. the incoming tenant), you should always ensure the assignment has been registered at the Land Registry and that enough time is given ahead of serving a break notice to consider all the technical aspects of the break.

This can be particularly difficult if the assignment is awaiting registration at the Land Registry (commonly known as the registration gap) and the time to serve the break notice is looming. If this is the case, as the assignee (incoming tenant), it would be a good idea to ensure that you have the authority to serve the break notice on behalf of the outgoing tenant during the registration gap. It may even be worth serving a break notice in the outgoing tenant’s name and the incoming tenant’s name.

For information and guidance on your right to serve a break notice, contact Commercial Property Solicitor, Raj Hundal, on 0116 402 7249 or email raj.hundal@bhwsolicitors.com.