The service of notices by commercial property managers in England and Wales

• Author: John Mansfield
• Position: School of Architecture, Design and Built Environment, Nottingham Trent University, Nottingham, UK

1 Introduction

In the commercial property sector in England and Wales, many of the procedures affecting the management of leasehold property are heavily dependant on the service of notices and counter-notices. These include contractual mechanisms contained within the terms of a lease as well as those prescribed, either by the Landlord and Tenant Act 1954 (the 1954 Act), or by the Landlord and Tenant (Covenants) Act 1995 (the 1995 Act). Two further statutes, the Law of Property Act 1925 (the 1925 Act) and the Landlord and Tenant Act 1927 (the 1927 Act), each contain detailed general provisions regarding service of notices.

The nature of the service, receipt, and response to notices served under statutory or contractual provisions is of great importance to both parties to a commercial lease and the need for practitioners' attention to detail cannot therefore be over-emphasised. The significance of notices is amplified where strict time limits apply, since there is no scope for retrieval once that time limit has expired [¹]. In this respect, practitioners involved in negotiating, transferring, renewing, and acquiring business premises for clients must have a thorough understanding of the applications of the various Acts that govern the relationship between the landlord and the tenant.

This paper offers a timely review of the principles and practice of serving notices, and comments on some of the practical implications of recent judicial decisions. It has two principal aims. The first is to contribute to a greater understanding of the evolving legal and technical issues within the service of notices provisions contained in the 1925 and 1927 Acts. The second is to discuss the practical requirements for effective service, and to highlight the potentially serious implications if these are not complied with. These two aims are addressed by reference to the provisions of the primary legislation and settled case law. The sequence of consideration within the paper closely maps the sequence in which various notice issues need to be addressed prior to dispatch.

Drafting errors are specifically considered under the “reasonable recipient” sub-heading and the principle of “time is of the essence” is assessed separately. The paper's final Section presents a critical commentary on historic lease drafting practice and some emphasis is placed on the recent campaigns for the use of plain English in the legal arena. Following the conclusion, the paper makes some recommendations for practice in the form of a short checklist of issues which property managers might wish to consider prior to issuing or responding to the various notices.

2 Relevant law and practice

2. 1 Reasons for notices

For parties operating in the commercial sector, there are many occasions that require notices to be issued or responded to by either party. These commonly include:

rent reviews;

interim rent;

rent arrears;

termination of tenancy;

application to court for continuation of tenancy;

contracting out of the protection within the 1954 Act via the Regulatory Reform (Business Tenancies; England and Wales) Order 2003;

break clauses;

consent to assign or sublet whole or part of demised premises; and

interim and terminal dilapidations.

Practitioners may also be required to serve or respond to notices issued in respect of various planning issues, land purchases under options, and compulsory purchase claims. It is important that the differences between the style, content, and means of service of these notices are fully appreciated.

2. 2 Statutory and contractual notices

The exact form, content and service provisions of notices can be addressed in two ways – by the incorporation of express details within negotiated contractual terms, or via statutory provisions under the 1925 or 1927 Acts. As discussed in more detail below, the courts will generally strictly construe the contractual provisions whereas those under statute have been subject to interpretation under criteria which differ between the various Acts, and between points of application. As will be seen, a particular area of difficulty has been the service and receipt of notices, and the alignment of the differing requirements of the 1925 and 1927 Acts. The detailed requirements can be found in Section 196 of the 1925 Act and Section 23 of the 1927 Act. These can be used to guide best practice, or to act as benchmark procedures, should disputes arise regarding aspects of the service of notices. These statutory provisions do not preclude or override express requirements for service, or for compliance with particular timetables incorporated in lease documents.

2. 3 Content of notices

Given the complexity of many notices, even those issued on precedent forms, there are ample opportunities for mistakes to be made. This could be for a range of possible reasons including, for example, a lack of attention to critical detail, pressure of work, or lack of experience in dealing with such matters. In addition to the contents of statutory notices, the courts have been asked to consider other issues such as the exercise of break clauses, the effectiveness of notices to quit and the content of options to purchase land.

A notice to quit an existing tenancy must fulfill two important common law requirements. First, it must state with certainty when the notice expires, i.e. the day upon which it is stated that the notice will take effect. Second, there must be sufficient notice, i.e. the time between the date of service of the notice and the date upon which it expires must be equal or longer than the minimum periods as defined by common law.

In Pennycook v. Shaws (EAL) Ltd [²] the landlord served a notice to terminate on the basis of breach of covenant. The tenant served a counter-notice erroneously stating their willingness to vacate. A second counter-notice was sent to rectify the error. Following Re 14 Grafton Street [³] and Bridgers v. Stanford [⁴] the Court of Appeal held that a counter-notice under Section 29(2) of the 1954 Act brings about an irrevocable change in the landlord and tenant relationship and it is not open for the tenant to serve a second, correcting counter-notice. In Sabella Limited v. Montgomery [⁵] the tenant failed to serve a counter-notice as the landlord's notice was not in the prescribed statutory form, the key flaw being that the notice omitted to warn of the need to act quickly. Section 25 notices with warning notices omitted were not in a form substantially to the like effect. These are important parts of the form. The notice was therefore invalid. Whether the tenant was misled or not was irrelevant.

The inclusion of an option to determine a lease – a break clause – provides occupational tenants with the opportunity to end a lease prior to the end of the contractual term. A break clause is a privilege and not a right and is usually accompanied by a strict timetable of notice compliance that must be adhered to if the option to break is to be successful. The exercise of the right is conditional upon “material compliance” with various obligations, and recent litigation, including Duke of Westminster and Others v. Birrane [⁶] and Fitzroy House Epworth Street (No. 1) Ltd and another v. The Financial Times Ltd [⁷] has considered the extent and nature of the term, for example. The service and response to notices is an important facet. In Garston v. Scottish Widows' Fund and Life Assurance Society [⁸] the lease provided for a break clause to be exercised on six month's notice. The notice given was calculated by reference to the wrong date, the date of the lease, and not the term contained in it. It was held that the mistake was not sufficiently clear to allow it to be remedied.

2. 4 The “reasonable recipient”

For some considerable time, the courts recognized that various forms of error or inaccuracies in notices would render them invalid. However, this position changed following the landmark case of Mannai Investment Co. Ltd v. Eagle Star Life Assurance Co. Ltd [⁹] in which the House of Lords, in overturning the Court of Appeal, held that a break clause notice was valid despite the fact that it specified the wrong date. The decision has provided a wide discretion for subsequent courts to ignore immaterial errors which would not have misled a “reasonable recipient.” In practical terms, either party considering a potentially defective notice has to assess whether as a “reasonable recipient” they understood when the notice was to have taken effect. While it seems that post-Mannai [⁹], notices can be inaccurate and valid, the courts have been asked to consider the boundaries of inaccuracy.

A number of residential cases have further examined some detailed aspects of the “reasonable recipient” test and the decisions in these cases have relevance in the commercial sector. In Speedwell Estates Ltd v. Dalziel [¹⁰] the notice sent to various tenants did not contain certain particulars specified by the Act. The Court of Appeal held the notices were invalid. In Burman v. Mount Cook Land Ltd [¹¹] the omission of crucial responses made the landlord's counter-notice ambiguous and this would leave a “reasonable recipient” confused, while in Ravenseft Properties v. Hall [¹²] a Section 20 notice needed to be...