What happens when a tenant serves a break notice ‘early’?

In the case of Vistra Trust Corp (UK) Ltd v CDS (Superstores International) Ltd [2022] EWHC 3382 (Ch), a lease of retail premises was granted in 2008, spanning a term of 21 years. The lease included a break option in February 2023. To exercise the break option, the tenant had to provide the landlord with at least six months’ notice, and in order for the notice to be valid, it must be served by special delivery or have receipt acknowledged by the landlord.

The tenant served a break notice and subsequently assigned the lease

On 10 December 2018 – a whopping four years before the break date – B&Q, the tenant under the lease, served a break notice on the landlord. B&Q later assigned the lease to CDS, effectively making CDS the new tenant, inheriting all of B&Q’s rights and obligations under the lease. CDS was aware that a break notice had been served but took on the lease hoping that the landlord would grant CDS a new tenancy after the break date. CDS made a request to the landlord for a new business tenancy under Section 26 of the Landlord and Tenant Act 1954 (LTA 1954).

What is the significance of the LTA 1954?

It’s important to note that if a lease incorporates sections 24 to 28 of the LTA 1954, as is the case here, then the business tenant under the lease is granted statutory rights to remain in the premises and have a new lease granted to them at the end of the term. The landlord in such a situation has limited grounds on which it may refuse to grant a new lease.

The landlord in this case had different plans as it was intending to offer a tenancy to a third party, and it argued that CDS’s request was void due to B&Q’s break notice. According to the LTA 1954, a break notice extinguished a tenant’s entitlement to a new lease. The landlord asserted that the lease would end on the break date.

CDS countered that B&Q’s break notice was flawed due to its premature service and the lack of confirmation of receipt by the landlord.

Was the break notice flawed?

The judge ruled that the timing of the break notice was not a deal-breaker, as although the lease had set a minimum notice period, it had not stated a maximum period for a valid notice. There is no significance in the serving of a break notice early, and the service of a break notice binds the tenant and its future assignees. CDS’s request for a new tenancy under Section 26 therefore failed.

On the matter of receipt, the letter serving the notice specified special delivery and CDS failed to present credible evidence challenging this.

Key takeaways

This case serves as a cautionary tale for landlords, urging them to be vigilant in safeguarding their interests against tenants’ inventive ways to claim entitlement to a new tenancy.

Tenants should also be wary of taking on assignments of leases where a break notice has already been served, if they were actually hoping to be granted a further tenancy.