The High Court has recently reached a decision based on the substance of an agreement, rather than a failure to follow the technicalities of the exact procedure required by contract. Doing so reveals a preference for justice over technicalities, indicating that future cases may also be viewed in this light.
In 1997, Friends Life agreed to lease a property in Crawley to Siemens for a term of 25 years from 24 August 2008, subject to a right on the part of the tenant to break the lease after 15 years. The right to break was reported to have been subject to giving vacant possession as well as paying all rent up to 23 August 2013 and 6 months additional rent. The lease was signed and agreed in 1999 in the agreed form and statutorily compliant form.
The lease provided that any break notice must be expressed to be given under Section 24 (2) of the Landlord and Tenant Act 1954. The purpose of this requirement was to stop the tenant serving a break notice and then applying for a new tenancy at a lower rent. This was feared to be a real possibility at the time, although this point of law was later clarified by the Court of Appeal in the 1998 ‘Garston’ case – rendering it impossible.
When the break notice was served in 2012, it made no mention of S.24 (2) of the Landlord and Tenant Act 1954. Even though the Garston case had rendered this clause entirely superfluous, it was nevertheless legally binding.
Friends Life sought to prevent the break by relying on established case law that break conditions and requirements must be strictly followed. In response, Siemens argued that the requirement was now meaningless and/or any failure in procedure was not fatal to a notice if it did not actually affect the landlord.
The matter concerned potentially substantial liabilities, with the passing rent at £325,000 per annum. If the break was ineffective, there would also be a liability for rates and insurance over a further 10 year period.
Despite the fact that the clause concerning S. 24 (2) was evidently no longer required, the Court held that the provision was not meaningless and had not been superseded – it was simply a requirement of the lease that fell to be complied with.
The case then turned on what was the effect of non-compliance with this requirement? The lease made no express provision. Although failure to pay the rent or give vacant possession by the break date would typically have been fatal, it did not follow necessarily that a failure to give notice in the right way would be.
The High Court considered that, in the absence of any provision that would invalidate the notice, the law was flexible regarding non-compliance with both statutory and contractual requirements as to notices, even where the lease stated that the notice must be served in a particular way. In particular, the law would look to the substance, not the form.
In this case, the Court held the notice to be valid in the absence of any express provision providing otherwise and because the failure to use the specified wording made no difference at all. Accordingly, the wording was dispensable and its use was not mandatory. Clearly, in the Court’s view, allowing the break clause was the most just result, a ruling which will be of interest to Landlord and Tenant lawyers dealing with such cases of technicality versus substance.
SRJ / LCB 28/10/2013