Summary

A notice given by a business tenant to operate a break clause in a lease was invalid, as it did not comply with the express requirements of the clause.

Facts

The appellant landlord (F) appealed against a decision that a notice given by the respondent tenant (S) exercising its right to break its lease was valid.

The lease was for 25 years. The break clause, cl.19.2, stated that any notice given by S exercising the right to break "must be expressed" to be given under the Landlord and Tenant Act 1954 s.24(2). S served notice of its intention to terminate the lease within the appropriate period and in compliance with the clause in all other respects, but did not expressly refer to s.24(2) or the Act. F said that the notice was not a valid notice. The judge held that the notice was not invalidated by the failure to state that it was given under s.24(2).

Held

(1) The judge's conclusion that although the notice did not comply with the requirements of cl.19.2 it was nevertheless a valid notice, was rejected. It was a well-established principle that in the case of a unilateral, or "if", contract such as an option, the terms of exercise had to be fully complied with, Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] A.C. 749 followed, United Dominions Trust (Commercial) v Eagle Aircraft Services [1968] 1 W.L.R. 74 and United Scientific Holdings Ltd v Burnley BC [1978] A.C. 904 applied. Notices given under statutes and some kinds of notices given under contracts, including rent review notices, even if labelled "options" did not fall into that special class of case. If the judge's approach was correct, it could not be restricted to compliance with conditions about the form of notices. It would surely also apply to trivial failures to comply with other conditions, such as a notice being served a few minutes late or trivial breaches of repairing obligations. In such cases, the question for the court would be whether the parties really meant that such trivial non-compliance would defeat a valuable right. However, in the case of a unilateral contract that had never been a relevant question (see paras 24-56 of judgment). (2) The word "must" was an emphatic and imperative word, and it was impossible to interpret cl.19.2 as saying that the notice must be expressed in a certain way but that it did not matter if it was not. The consequences of failing to comply with an option were clear under common law. Failure to exercise the option in time meant that it had not been validly exercised. It was not for the court to ascribe different consequences to non-compliance with one part of the description of the event than to any other part if the parties by their contract had not done so, United Dominions Trust applied. The judge had not sufficiently appreciated the special nature of a unilateral contract. In the instant case, a requirement that the notice "must" be expressed in a particular way could not be relegated to a permissive provision, Petch v Gurney (Inspector of Taxes) [1994] 3 All E.R. 731 and Yates Building Co Ltd v RJ Pulleyn & Sons (York) Ltd (1975) 237 E.G. 183 considered. The judge was wrong to hold that the fact that the parties did not explicitly prescribe the consequences of a failure to comply with the formal requirements of cl.19.2 meant that the court could do so (paras 58-61). (3) S's argument that there was sufficient compliance if the notice achieved the purpose underlying the requirements of the clause was not accepted. The purpose underlying a contractual provision might be highly relevant to what it meant. However, what cl.19.2 meant was that the notice had to say that it was being given under s.24(2). Compliance with the substantive provisions of s.24(2) was not the same as complying with the formal requirements of the clause. Moreover, as cl.19.2 required that the notice be "expressed" to be given under s.24(2), it would not be enough to conclude that it conveyed that message implicitly. There had been no compliance with the formal requirement of cl.19.2 that the notice be expressed in a particular way. There was no room in the field of unilateral contracts for the notion of substantial compliance. The question was whether the relevant event had occurred, and had to be answered yes or no; it could not be answered "almost". Either a purported exercise of an option satisfied both the formal and substantive provisions of the clause or it did not. If it did not, it was ineffective, United Dominions Trust considered (paras 63-65).

Appeal allowed