Break notices and the registration gap: serving a break notice prior to new tenant’s registration.

Break notices and the registration gap: serving a break notice prior to new tenant’s registration.

In Sackville v. Robertson [2018] EWHC 122 (Ch), the High Court considered a summary judgment application by a landlord arguing that a purported break notice served by an assignee of the tenant was invalid, as at the time of service of the break notice the assignment had not been registered at the Land Registry.

The landlord (and claimant in the application) was known as Sackville. Robertson was the original tenant (and first defendant) and Integro was the new tenant following the assignment (and second defendant in the proceedings).
The lease was for a ten year term from March 2013, so expiring in 2023. A break right existed in favour of the Tenant to break on 14 March 2018 giving nine months’ written notice (and subject to other conditions relating to payment of rent and the giving of vacant possession).

“Tenant” in the lease was defined to include successors in title.

Following the grant of the lease, it was registered at Land Registry in Robertson’s name. Then, in 2017, Robertson’s business was acquired by the Integro Group. As such, a licence to assign was entered permitting the assignment and requiring Integro to register the assignment within ten business days.

Integro’s solicitors purported to serve a break notice in May 2017 stating that they acted for Integro “being the Tenant under the Lease”. However, at that stage, Integro had not complied with its obligation to register the assignment within ten business days: in fact, this only happened on 7 July 2017.

The key question for the court to decide was whether the break notice was invalid as it had been served on behalf of someone who was not the Tenant, just the beneficial owner of the lease.
The court found that the break notice was indeed invalid.

The break notice should have been given by Robertson. When serving the break notice, Integro was merely an equitable assignee. Title to the lease remained vested in Robertson, pending registration of Integro. By section 27(1) of the Land Registration Act 2002, a disposition of a registered estate does not operate at law until the disposition is completed by registration.

A number of arguments to the contrary advanced for the tenant were made but each of them failed. In particular, it was found that the tenant could not be described as a successor in title of Robertson. At the time of the break notice, the lease remained vested in Robertson but Robertson held on trust for Integro. Further, an argument that, while the notice was given on behalf of Integro, it should also be considered to have been given on behalf of Robertson, was also rejected.

Firstly, evidentially, that had not been the intention. Integro had merely told there solicitors to serve notice on their behalf, delegating to their solicitors the question of what needed to be served.

Secondly, even if the notice had been intended to be given on behalf of Robertson, the notice (given in the name of Integro) was not valid unless a reasonable person in the position of the Landlord would on receiving the notice, understand that when it stated “Integro” it meant to say “Robertson”. The court rejected this argument, finding that the reasonable recipient of the notice would have believed that Integro had complied with its obligation to register the assignment at the Land Registry and would be unlikely to understand that the notice was meant to have been served by Robertson and that the name of Integro was a mistake.

As is often the case, the consequences for failing to exercise the break successfully are potentially severe for Integro. The annual rent was in the region of £220,000 per annum and the lease was to continue for a further five years. Generally in these circumstances, tenants are best advised to mitigate their losses by seeking to assign or sub-let their remaining interest in the lease to a third party as soon as possible or, if amenable to the landlord, to agree terms for an early surrender. Inevitably, such tenants will also strongly consider whether their losses can be reclaimed from their solicitors.

William Lawrence