Date:  15 October 2008

BREAK NOTICES - A DOSE OF SCOTTISH COMMON SENSE

The recent case of Ben Cleuch Estates Limited v Scottish Enterprise has provided a shred of comfort for tenants and their solicitors in relation to the pitfalls of such notices not being entirely correctly addressed.

In this case the tenant Scottish Enterprise had the opportunity to break its 25 year lease after 15 years upon service of appropriate notice upon its landlord Ben Cleuch Estates Limited. The landlord was a wholly owned subsidiary of Bonnytoun Estates Limited. The companies shared the same directors and the same registered office.

In the course of the tenancy the landlord’s managing agents had consistently issued rent demands using the name of the landlord’s parent company rather than the name of the true landlord, and had issued standard correspondence (including letters of consent) on behalf of both companies but indicating that they were acting as agents for the parent company rather than the subsidiary.

Apparently the managing agents IT systems did not permit demands and reports to be produced on a per company basis, only for the entire group of companies concerned.

Accordingly the tenant served its break notice addressed to the parent company and to the registered office both companies shared. The notice came to the landlord’s attention before the break date. The landlord took no action on the notice (and indeed was not was not obliged to do so), but sat on it, allowing the date to pass before writing to the tenant to refute the validity of the notice on the basis of its being wrongly addressed.

The court found that the tenant was entitled to rely upon the fact that the rent invoices were issued in the name Bonnytoun Estates Limited and the other representations as to Bonnytoun’s role as apparent landlord. Despite the error the true landlord had not been mislead by the mistake and fully understood the purpose of the notice. Accordingly the court held that the notice was effective to terminate the lease even though wrongly addressed.

The Scottish courts have taken a sound commercial approach to the issue rather than enforcing what would otherwise be a technicality. However the decision turned on the facts and it would not be wise for a tenant or its solicitor to assume that a wrongly addressed notice will always be valid.

A prudent tenant should take steps to avoid problems arising by: 

• Taking action on the break clause in good time before the critical date for service of notice

• Identifying the key elements to the operation of the break clause (parties, time limits addresses and any pre conditions) and checking compliance

• Carrying out all necessary searches to check the identity of the current landlord and its address

•  Involving its solicitor in the proposals at the earliest stage.

This case had passed through the Scottish Court of Session and was finally determined on appeal by its Inner House. If the above procedure had been followed then the significant cost and worry of litigation would not have occurred!

Clive Vernon