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Serving a break notice on pink paper rather than blue – a salutary tale

In Friends Life Limited v. Siemens Hearing Instruments Limited [2014] EWCA Civ 382, solicitors for Siemens, the tenants,

...served a break notice complying with all that one might think really mattered (6 months notice, delivery up with vacant possession, 6 months’ rent payment) but not with the requirement that “the notice... must be expressed to be given under section 24(2) of the Landlord and Tenant Act 1954”. That notice has now been held ineffective. Siemens faces 10 years of lease liability at £325,000 p.a. rent.The first instance judge thought he could take into account objective criteria such as the background and purpose of the clause and the effect of non-compliance, saying that the “incantation of magic words” were not an indispensable condition and therefore upheld the validity of the notice. These “magic words” (i.e. making reference to the 1954 Act) in fact were of no legal materiality (the reasons are detailed in the CA judgment).

The Court of Appeal’s judgment was a masterful review delivered by Lewison L.J. of the principles of interpretation as applied to unilateral contracts, in particular, options; it is likely to become essential reading for anyone dealing with a disputed option case. He pointed out that in Mannai Investment v. Eagle Star, the majority Law Lords had accepted that the break notice had complied in form and content with the lease requirements (the Mannai tenants miscalculated the termination date by 1 day but the message to the landlord that they were giving notice to terminate the lease pursuant to the break clause was clear), but none had supported the notion of a species of “permitted non-compliance” (i.e. not correct in form and content but somehow excusable).

In Mannai, Lord Hoffman commented that “if the clause had said that the notice had to be on blue paper, it would have been no good serving a notice on pink paper, however clear it might have been that the tenant wanted to terminate the lease.” The failure in Friends Life expressly to refer to section 24(2) now provides a metaphorical equivalent of using “pink” paper instead of “blue”.

Friends Life reasserts an established principle: option conditions must be completely fulfilled. Substantial fulfilment is not enough.

Lawrence Caun / 1st May 2014


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