UK: Once More Unto The Breach?

Last Updated: 21 November 2006
Article by Simon Konsta

If there is one subject which can (and should) strike fear into the heart of a professional adviser operating in the property field, it is the risk of serving a defective landlord and tenant notice.

Any management surveyor or property solicitor - we are all in the same boat here - who claims never to have experienced the chilling moment of self doubt when a landlord and tenant notice which he or she has served is challenged by the recipient, has either achieved a state of complete perfection, amnesia or delusion.

Depressingly, that sense of dread is commonly well-placed given the large numbers of defective notices which are served by surveyors and solicitors every year at a cost of millions of pounds to those professions and their insurers. It is hard to avoid the conclusion that those who accept instructions to serve landlord and tenant notices are engaged in an unacceptable game of Russian roulette: the odds are not good and the stakes are also unacceptably high - this is an area in which work done for £500 (or less) regularly results in claims for £500,000 (or more).

The safest advice is not to get involved in this area of work at all because the risk of a negligence claim is just too high. In most cases, however, such advice is simply impractical, nor would it be realistic to price the work at a level which properly reflects the risks involved. Does this mean that the best we can hope for is damage limitation in the context of loss-leading work? Possibly it does, but that is not an excuse for poor risk management or for surveyors and solicitors to cave in when the inevitable claims arise. From an insurer’s perspective, neither of those options are acceptable in any event.

The good news is that something can be done: the main causes of defective notices all respond well to treatment by good risk management, and when claims do arise they can often be cut down in size by deploying causation and mitigation arguments.

The commonest ways in which things tend to go wrong can be categorised as follows - the list is not exhaustive:

  • Date errors - these are as avoidable as they are recurrent. There is hardly ever an excuse for getting the date of expiry of the notice wrong, especially where, as is often the case, there is no need for the notice to specify a date at all.
  • Wrong parties - problems with notices which name the wrong landlord or tenant are equally inexcusable and commonly fatal. Transfers between group companies, for example, are too often overlooked.
  • Wrong address/method of service - there should usually be no doubt in relation to either party’s address for service but, as in all other respects, it is always important to check the lease wording carefully because, for example, a notice served at a landlord’s trading address when the lease specifies service at its registered office could be defective. Equally, although the method of service will normally be permissory, some leases prescribe a mandatory method of service and in those cases adopting any other method (even if the notice gets to the right destination) is also likely to be fatal.
  • Break notices - these present their own particular minefield in which any one of the above errors can deprive a tenant of a valuable option to break. More specifically, problems arise when tenants fail to adhere to a condition precedent, often in the form of a requirement to comply with all of the lease covenants. Sometimes the condition precedent will be qualified but often it is absolute (everyone is familiar with the example of the tenant which lost its right to break because it applied two coats of paint when the lease required three coats: this example is not apocryphal, it actually happened in the case of Osborne Assets Limited v Britannia Life Limited (1997)). In these circumstances, tenants tend to require early, practical and, from a professional risk perspective, well-documented advice in the hope of limiting the landlord’s scope for challenging the notice.

The recent case of Fitzroy House Epworth Street (No 1) Limited v The Financial Times Limited (2006) provides a good example of how a well-advised tenant can protect itself when faced with an obstructive landlord. The tenant’s break was conditional upon the tenant having "materially complied" with all of its covenants. After serving its break notice, the tenant attempted to agree a programme of repair and redecoration works with the landlord specifically with a view to avoiding a dispute over its entitlement to break the lease. However, the landlord refused point blank to discuss the position, leaving the tenant with no real option but to go ahead with the works which cost over £1m. Only after the tenant had fully committed itself, by carrying out the works and vacating the premises, did the landlord eventually serve a schedule of defects and oppose the tenant’s right to break. The court had little sympathy for the landlord’s position (although the parties’ conduct is not strictly relevant) and it was held that the tenant had done enough to show material compliance with the repairing covenant.

Nevertheless, and notwithstanding the landlord’s obstructiveness, the outcome in Fitzroy would almost certainly have been different had the condition been absolute rather than qualified. If any reminder is required that landlord and tenant notices and professional negligence law create a dangerous cocktail, it is provided by the case of Secretary of State for the Environment v Unicorn Consultancy Service and Veale Wasbrough (2000) in which both defendants (managing agent and solicitors respectively) failed in their common duty to remind the Secretary of State that his break notice would be ineffective unless coupled with a payment of £100,000 shortly before the break date. Each defendant denied breach of duty and blamed the other, but the judge was scathing of their incompetence and held them jointly liable for damages of £1.1m based on the cost of buying out the remaining 11 years of a 25 year lease. The defendants’ liability could so easily have been avoided by some simple precautions: (a) clarification of instructions, (b) a modest level of communication between the managing agent and the solicitors, and (c) the use of a diary. It is so often the simple things rather than complicated issues which result in claims.

The one consolation for the defendants in the Unicorn case was that the £2.2m originally claimed was cut in half as a result of the contributory negligence of the Secretary of State who had no internal reminder system of his own to ensure that the payment was made on time. That task required no expertise and the judge found that his passivity was "contributory negligence of a high degree". As between the professionals, the solicitors’ negligence was "particularly blatant" but in the end the judge held that the managing agent was equally responsible and that each defendant should therefore bear half of the damages.

The moral is clear: if surveyors and solicitors fail to take adequate steps to limit, agree and adhere to their respective areas of responsibility they should not be surprised if, after all other avenues for reducing the size of the claim have been exhausted, they are reduced to arguing amongst themselves in an attempt to limit their individual exposure to the losses caused by a defective landlord and tenant notice.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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