News

Introduction

An increasingly heavy reliance on instantaneous communication, coupled with the high pressure working environment we frequently find ourselves in, means that there is a real danger of responding to others without fully appreciating the outcomes that may subsequently arise.

The recent case of (1) MW Trustees v Telular Corp serves as a warning to both landlords and tenants as to the potentially far reaching consequences that can ensue when sending such a communication, in this case an email, without pausing to take stock of what effects it may have. Furthermore, agents should have regard to the fact that their actions may indeed bind their principal.

The Case 
The case involved a tenant (Telular Corp) who was granted a ten year lease from 1 March 2005. The lease contained an option for the tenant to break the lease after 1 March 2010 provided that the landlord was given at least 6 months’ notice of this intention. The lease went on to state that all notices served in connection with the lease were ‘only valid if’ they were sent either by special delivery or by hand, indicating that the method of service was mandatory.
In 2008 MW Trustees acquired the landlord’s interest in the lease.
The tenant, wishing to exercise the break option, correctly sent the notice by special delivery, however incorrectly served the notice on the claimant’s predecessor in title as it was unaware that there had been a change in landlord. It was acknowledged by the representatives of both the landlord and the tenant that this initial notice was invalid.

The landlord’s predecessor in title informed the tenant that the notice needed to be served on the current landlord’s agent. A copy of the notice was sent to this agent via email and the agent responded to the tenant stating that it ‘accepted’ the break notice and that it was happy for the tenant to break the lease. The agent requested that the notice be readdressed to the landlord and the tenant prepared this notice, however it was either not posted or it was sent but subsequently lost in the post.

In order to prevent the tenant vacating the premises and ceasing to pay rent the landlord brought a claim in which it sought a declaration that the tenant had not served a valid break notice and therefore had failed to determine the lease.

The outcome of this case hinged on whether the email response from the landlord’s agent meant that the formal requirements for serving the break notice, as prescribed by the lease, had been dispensed with, and therefore whether the break clause had been validly exercised.

The landlord’s position was relatively straightforward in that it argued that the notice served by email was invalid as it had not complied with the notice provisions contained in the lease. It submitted that the agent’s response was merely acknowledging receipt of the tenant’s email, rather than accepting the break notice, and therefore the tenant remained bound by the terms of the Lease. This, it said, was reinforced by the fact that the agent requested that the tenant readdress the notice to the landlord. The judge said that this line of argument should not be viewed as negative conduct on the landlord’s part as this was a commercial arrangement and the landlord was entitled to take whatever position it felt appropriate in order to protect its commercial position.

The judge went on to say that, by the same token, the tenant could take the arguments that were in its favour for its commercial benefit. The tenant accepted that the notice served by email was invalid as it was not addressed to the landlord and it was not delivered by special delivery or by hand, however it contended that the email response from the agent waived any defects and did amount to an acceptance of the break notice, despite the fact that the form and method of service did not comply with the lease.

The court found in favour of the tenant. The judge said that the use of the word ‘accept’ contained in the agent’s email response to the tenant was vital and that the email amounted to an acceptance on behalf of the landlord that the tenant wished to exercise the break option. Therefore the agent’s ‘acceptance’ dispensed with the need to follow the strict requirements contained in the lease.

The judge said that the agent’s language could not be construed as not accepting the notice when it specifically stated that the notice was accepted. Furthermore the judge indicated that had the agent merely acknowledged receipt of the email, rather than ‘accepting’ the email, it would have been open to challenge but as it stood, the tenant was entitled to assume that nothing more was required of it. The court held that the tenant had acted on the basis that the notice had been accepted by the agent and that the notice had been effective in bringing the lease to an end.

Furthermore, the landlord was stopped from subsequently challenging the break option.

In making his decision, the judge relied on the earlier case of (2)Mannai Ltd v Eagle Star Insurance Co Ltd which compelled the judge to look objectively at what a ‘reasonable recipient’ would consider the purpose of the notice to be. The judge took the view that that the purpose of the notice was to inform the landlord of the tenant’s intention to terminate the lease and therefore, provided that this intention was clearly stated, minor inaccuracies or slight breaches could be overlooked. The judge concluded that the landlord in this case could glean the tenant’s intention from its email.

The courts in recent years have taken a broadly purposive approach in similar cases and there generally appears to be an intention to give a result that bears resemblance to the commercial reality of the situation and to the minds of the parties involved, rather than slavishly following the contractual terms. Whilst this approach can undoubtedly be applauded, it does create an element of uncertainty as to what will, and what will not, be deemed to be the valid service of notice, particularly when notice provisions are specifically included in leases as standard. Such ambiguity is clearly undesirable and it could be argued that, although harsh results may be produced if the courts adhered to strict compliance, a rigorous line of interpretation would inevitably lead to greater certainty which brings with it commercial advantages in that both parties to the lease can easily recognise what is required of them.

Summary
Although this case does not contain any principles of law which have not previously been decided upon by the courts, it does serve to draw attention to some important issues which are often overlooked. For example, the case emphasises the need to exercise caution and care in written correspondence and the importance of delivering considered responses rather than hastily drafted replies.

Furthermore, this case shows the ability of an agent to bind a principal and more importantly, it demonstrates the agent’s ability to bind the principal into a set of circumstances that they do not necessarily wish to be bound into. Agents should use care when sending responses on behalf of landlords, and should be particularly alert to the distinction between acknowledging receipt of notices and accepting notices.

Finally, whilst the case demonstrates that the courts are willing to take a more relaxed approach in order to eschew the severe consequences of the strict rules of compliance, it also clearly highlights the importance of having a carefully drafted service clause within a lease. When preparing bespoke leases for our clients, the commercial property department at Samuel Phillips Law Firm ensure that the leases contain comprehensive notice provisions to make certain that both parties are clear as to how and when notices are deemed to be validly sent and received in order to avoid significant cost, time and stress later down the line.

Joanne Lisle - Solicitor - Samuel Phillips Commercial Property

(1.) MW Trustees Limited and Others v Telular Corporation [2011] EWHC 104 (Ch)

(2.) Mannai Ltd v Eagle Star Insurance Co Ltd [1997] AC 749