Notices clause defeats tenant’s attempt to terminate agreement for lease

In one of Mr Justice Fancourt’s first reported judgments, he determines questions of validity of notices and waiver of pre-conditions, as set out in an agreement for lease. In the case, five notices had been served, of which three were held to be either invalid or ineffective.

In Ropemaker Properties Limited v (1) Bella Italia Restaurants and (2) Casual Dining Group Limited [2018] EWHC 1002 (Ch), a notice served by the tenant was held to be invalid because it did not comply with a formal requirement in the agreement for lease for the tenant also to serve it on the tenant’s guarantor (notwithstanding that the guarantor did actually receive a copy of the notice “for [its] records”). The ultimate effect of this was that the tenant and guarantor (group companies), having resolved to terminate the agreement for lease, did not do so effectively prior to the landlord making the agreement for lease unconditional.

This is a keen reminder of the principles that apply to assessing the validity of notices. In particular, agreed formalities must be complied with precisely, whether or not that might mean the notice is considered invalid on a “very technical and unattractive basis”. Applying Siemens Heating Instruments Ltd v friends Life Limited [2014] EWCA Civ 382, Fancourt J held that a failure to comply with such formalities will invalidate the notice and “it makes no difference that the requirements were substantially complied with or had no apparent purpose or benefit”.

Two arguments in relation to waiver were also determined in the case.

In the first, the tenant and guarantor sought to argue that the guarantor had waived any requirement that a notice should be served on it. Fancourt J acknowledged that this argument was “something of an afterthought”; the only argument put forward by the tenant’s solicitors when defending the validity of the notice was that on a “natural interpretation” of the relevant clause and “as a matter of commercial common sense”, only the landlord should have to serve notice on the tenant’s guarantor, not the tenant. On the facts, Fancourt J held that no express waiver or waiver by conduct could be made out in any event.

The tenant’s second point on waiver was that, on a true construction of clause 13.4 of the agreement for lease, the landlord was not entitled to waive the neighbouring unit condition (“NUC”) if a notice under clause 13.3 purporting to satisfy the NUC had been served, whether or not that notice was valid.

Clauses 13.3 and 13.4 provided as follows:

1. “The Landlord or the Developer shall give the written notice to the Tenant referred to in clause 13.2 as soon as reasonably practicable after the satisfaction of the last of the Neighbouring Unit Conditions Precedent.
2. The Landlord and/or the Developer may waive the Neighbouring Unit Condition in its absolute discretion at any time before a notice is served under clause [13.3]”.

In determining whether service of a notice under clause 13.3 prevented the landlord from waiving the NUC, applying Chartbrook Limited v Persimmon Homes Limited [2009] UKHL 38 and Arnold v Britton [2015] UKSC 36, Fancourt J held that clause 13.4 “must be interpreted objectively, as it would be reasonably understood by an informed person in the position of the parties at the date when the agreement for lease was made”.The tenant’s argument failed as it would create a nonsensical scenario whereby the landlord could correct its first invalid notice by serving a second valid one, but could not waive the NUC after service of an invalid notice, even though the clause reserved a unilateral right to waive.

The effect of this finding was that (i) the landlord had successfully (on its third attempt) made the agreement for lease unconditional, requiring the tenant to complete, and (ii) that the tenant’s second notice to terminate, whilst it otherwise complied with the relevant formalities in the agreement for lease, could not be effective.