Tyco Fire & Integrated Solutions (UK) Limited v Regent Quay Development Company Limited, 16 August 2016 – Validity of notice exercising break option in lease
This is an Inner House case concerning the validity of a break option served by a tenant to a landlord in respect of premises in the Glover Pavilion at Aberdeen Science and Technology Park.
The lease was originally of units 3 and 4 in the pavilion and was for a period of 10 years ending in February 2014 and contained a break option exercisable after 5 years. However, in October/November 2011 the parties entered a minute of variation, which amended the lease to include additional premises (unit 1), extended the term of the lease until August 2021 and included a new break option exercisable by the tenant 5 years after the “effective date” provided in the minute of variation (on providing 6 months’ prior notice).
The tenant served a notice exercising the break option in January 2016. However, the landlord argued that the notice was invalid as the heading of the letter containing the notice referred only to units 3 and 4 (followed by the term “the Premises” in parenthesis) and not to unit 1. The landlord argued that this created confusion by attributing a new meaning to a defined term (i.e. arguing that the premises had been redefined in the letter as being units 3 and 4 without unit 1). In addition, it was argued that, when this was error was taken with the first paragraph of the letter which referred only to the lease and not to the minute of variation (although the tenant had referred to the minute of variation in the second paragraph of the letter), it had the effect that the notice applied only to the original lease and not the lease as varied by the minute of variation.
In the Outer House Lord Tyre rejected those arguments and granted declarator that the notice had been validly served. The test to be applied was how a reasonable recipient with knowledge of the terms of the lease would have understood the notice and Lord Tyre found that, when the notice was read as a whole, a reasonable recipient with knowledge of the lease would have understood the notice to refer to the lease as it had been at the date of the notice (i.e. as varied.).
The Inner House agreed with Lord Tyre’s findings and refused an appeal. Deciding the issue was a matter of assessing the impression immediately made on a reasonable recipient of the notice with knowledge of the relevant background and context. After considering the factors which were known by the Landlord in this case, the court said the following:
“Against that background, what would the reasonable landlord have understood as being the meaning of the letter received? We accept that (s)he would, no doubt, observe that the heading of the letter – not the notice itself (which is contained in paragraph 2 of the letter) – refers to only two of the leased units. But on proceeding to read the whole letter, it would be clear that the heading was simply incomplete; what the tenant plainly intended was to intimate that the right to terminate conferred in clause 4.2 was being exercised. That was, for the purpose of the landlord/tenant relationship, the operative part of the letter. It was not as if any part of the letter sought to open negotiation for the termination of Tyco’s tenancy of only two units and retention of a tenancy of unit 1. We can accept that (s)he might have paused in respect of the definition of “the Lease” in paragraph one. However, that pause would, we consider, have been a brief one. We agree with the Lord Ordinary that, on reading the letter as a whole, there would have been no real doubt. It was simply too improbable that Tyco were serving notice under a lease which had expired, particularly given the specific reference to the then current break option clause in paragraph 4.2 of the Minute of Variation.”
The full judgement is available from Scottish Courts here.
All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.
 Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd  AC 749 as recently applied in Scotland in West Dunbartonshire Council v William Thompson and Son (Dumbarton) Ltd 2016 SLT 12.
 Which the court noted as follows:
- “that, by 11 January 2016, the date for the expiry of the lease entered into in 2004 was long since passed and by that time, parties’ contractual rights and obligations were contained in the whole terms of the 2004 and 2011 documents read together (the original lease read together with the Minute of Variation);
- that Tyco were tenants of units 1, 3 and 4 under contractual terms which were unitary in relation to those premises;
- that Tyco had never had any right to terminate their tenancy in relation to individual units;
- that clause 4.2 of the Minute of Variation provided only for termination of Tyco’s whole tenancy;
- that, to exercise the clause 4.2 right, Tyco required to provide written notice at least six months prior to 31 August 2016 but the notice did not need to be in any particular form;
- if Tyco were going to exercise the break option, it would be sensible to service the clause 4.2 notice well in advance of the end of February 2016 – notice in the course of January 2016 would not be at all surprising; and
- that if Tyco were, after 31 August 2016, to be tenants of unit 1 only, parties would require to enter into a new agreement as the terms of their existing agreement were not divisible and made no allowance for partial severance of the tenancy.”