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Sit up and Take Notice – Contracts in Motion

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Red post boxIn property contracts, the serving of notices is a key step in creating, exercising or terminating legal rights pursuant to leases, agreements, options or sales.  And yet often notices are considered a mere formality and served by the parties themselves without taking legal advice.  The sheer volume of case law dealing with incorrectly served notices, or notices which fail to be served within the correct time period, testifies to the importance of understanding the principles and avoiding the pitfalls.

Getting the timing right
The starting point for anyone looking to serve notice under a contract is to check the time for service of the notice.  This frequently depends on the interpretation of the commencement and expiry of the contract.  For example, leases are often expressed to run for a term of years “from” or “commencing on” a specific date and these have different meanings. Some points to bear in mind are:

  • If a lease is specified to run for a term of 5 years “from” the date of completion, and the lease date is 1 January 2013, then the lease will expire on 1 January 2018 as the first day of the term is excluded from the calculation.
  • If the same lease is specified to run for a term of 5 years “commencing on” or “from and including” then the lease will expire on 31 December 2017 as the first day is included in the calculation.
  • The parties to an agreement for lease have to complete “within” 15 days of the issue of a certificate of practical completion for works.  If the certificate is issued on 1 June 2013, then the lease must therefore be completed by midnight on 15 June 2013 (as the day on which the certificate is issued is ignored).
  • Be particularly wary of break notices – these are often vague, for example permitting the tenant to determine on the fifth anniversary of the term commencement date on not less than six months prior written notice.  If the commencement date of the lease was 15 December 2012, then the determination date will be 15 December 2017.  Not less than 6 months notice in writing is acceptable, so the notice must be served by 13 June 2017 as the first and last day of the notice period are ignored.  If you are serving the notice by recorded delivery, the delivery time must also be factored in.

Getting the service of notice right
Assuming the timeframe is correct, the next hurdle is serving it correctly.  The starting point is to check the particular contract or lease, as most contain provisions governing how to serve notices and sometimes even contain the address for service of the notice.  You will usually find such clauses permit service by post, by hand or by fax.  Email is not yet considered acceptable for service of an important notice, mainly because there are numerous difficulties with confirming receipt, and people changing email addresses.  The lease might permit service by fax, but it can also be difficult to confirm receipt of faxes.  There is no harm in serving the notice in a number of different ways to ensure receipt.

There are a number of statutory requirements if the contract is silent as to service.  The Law of Property Act 1925 s.196 applies to all notices under the 1925 Act and any notices required to be served by any instrument affecting property, unless the contrary intention appears.  S.196 applies the following rules to notices:

  • They must be in writing
  • They must be addressed to the “tenant”, the “mortgagor” or “the persons interested”
  • They must be served by leaving it at the place of abode or company’s registered office or sending by recorded delivery or post to the registered office or place of abode

Section 23 of the Landlord and Tenant Act 1927 applies to all notices to be served under either the 1927 Act or the Landlord and Tenant Act 1954 (eg section 25, 26 and 27 notices) and also s.17 notices under the Landlord and Tenant (Covenants) Act 1995.  Again, these must be in writing, served by personal service or post at the place of abode, and (where service is to a landlord) the notice can also be served to any agent properly authorised by the landlord.

All notices must observe all the requirements set out in the contract or lease. Notice provisions in leases can specify where and when a notice is to be served, provide prescribed forms, and require them to be served on a named person. Whilst minor defects in notices will not necessarily invalidate the notice if the recipient would not be confused by the error (the “Mannai principle” after the case of the same name) you would not want to be put to the cost of arguing the principle in court.

In Mannai, a right to break was exercisable on not less than six months notice in writing to expire on the third anniversary of the lease.  The tenants served a notice stating that the termination date was 12 January when in fact it was 13 January.  The Court of Appeal held the notice was effective because it was otherwise clear, but as Lord Hoffman stated: “if the clause had said that the notice had to be on blue paper, it would have been no good serving a notice on pink paper, however clear it might have been that the tenant wanted to terminate”.  In otherwords, it is still essential to comply with any specific requirements as to how to serve the notice.

A final note – where possible parties should avoid serving notices at the last minute.  Where there is sufficient time to serve, experience shows there is less likelihood of error and less chance of the notice being defective or successfully challenged.

By Stephen Bottle, Solicitor in the Commercial Property Team at Cambridge Barr Ellison.

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