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Commercial Tenants Beware! – Formalities Do Matter

All landlords and tenants would be wise to take note of a Court of Appeal case in which a commercial tenant lost a valuable opportunity to exercise a break clause due to its failure to follow to the letter the formalities prescribed by the lease.

Commercial premisesThe lease dictated that the break clause could only be exercised on service of a notice which expressly stated that it was given under Section 24(2) of the Landlord and Tenant Act 1954. It was not disputed that the notice given, whilst compliant with the lease in every other respect, did not include that precise form of words.

A judge nevertheless accepted that the notice was valid in that the tenant’s failure to use ‘the magic words’ had made ‘no difference at all’. The judge found that it would not be sensible to ‘adhere slavishly’ to a formal requirement of the lease which could not be viewed as mandatory in the circumstances.

However, in reversing that decision, the Court noted that the use of the word ‘must’ in the relevant clause was ‘emphatic and imperative’ and that it ’left no room for the notion of substantial compliance’. The issue of whether the requirement had been complied with had to be answered either ‘yes’ or ‘no’ and ‘almost’ was not good enough.

The Court acknowledged that its ruling represented a ‘harsh result’ for the tenant, but observed, “The clear moral is: if you want to avoid expensive litigation, and the possible loss of a valuable right to break, you must pay close attention to all the requirements of the clause, including the formal requirements, and follow them precisely.”