The High Court has ruled that a tenant break notice served by an equitable assignee was invalid in Sackville UK Property Select II (GP) No. 1 Ltd v Robertson Taylor Insurance Brokers Ltd [2018] EWHC 122 (Ch) reaffirming the need to pay extra caution when serving notices on or around assignment.
Background
Sackville v Robertson concerned the validity of a notice purporting to exercise a break option in a lease, an unsurprisingly habitual area of dispute.
The lease was granted by Sackville to Robertson on 14 March 2013 for a term of ten years at an annual rent of £219,575.03. Robertson was purchased by the Integro Group and the lease was assigned by deed from Robertson to Integro on 29 March 2017. It was a term of the licence to assign that Integro would apply to register the assignment of the lease at the Land Registry within ten business days of completion.
The lease included a break option enabling the tenant to determine the lease on 14 March 2018 by giving the landlord not less than nine months prior written notice. Integro’s solicitors served a break notice by letter dated 2 May 2017 purporting to exercise the break option on behalf of Integro (the assignee), not Robertson (the assignor). Integro failed to apply for registration within ten business days of the assignment and was only registered as the proprietor of the lease at the Land Registry on 7 July 2017.
The landlord applied for a declaration that the lease would not determine pursuant to the purported break notice, asserting it had not been served on behalf of the tenant since Integro had not become legal owner and registered proprietor of the lease and was only an equitable assignee when the notice was served.
Decision
Robertson and Integro argued that the notice was valid because, under the Landlord and Tenant (Covenants) Act 1995 from assignment of a “new tenancy” (i.e. a lease granted on or after 1 January 1996) the assignee becomes bound by the tenant covenants and entitled to the benefit of the landlord covenants. Accordingly, Intregro argued it was entitled to the benefit of the landlord covenants including the landlord’s obligation to recognise the break notice and treat the lease as terminated on 14 March 2018.
However, the court held that the landlord’s obligation to recognise the lease as terminating was only triggered if it received a valid break notice. Integro was not the “tenant” or a “successor in title” at the date it served the break notice; it was an equitable assignee and therefore the break notice should have been served by Robertson. The court further disagreed with the alternative argument that the notice was also served on behalf of Robertson. The notice was therefore held to be invalid resulting in the lease continuing until its contractual term date of 13 March 2023.
Implications
If Integro had been registered as the proprietor at the Land Registry before the break notice was served, the notice would have been valid.
The case demonstrates that during the gap before the assignee of a lease is registered as the proprietor, a break notice will need to be served by the outgoing assignor. Given the severe financial consequences that can flow from failing to operate a break option effectively (in this case over £1 million of rent), the case reaffirms the importance of taking legal advice and paying extra caution when serving break notices, particularly on or around the date of assignment.
