When serving a notice under a lease, such as a rent review notice or break notice, care must be taken to ensure that the requirements of the relevant lease provisions are met and that the terms of the notice are correct. A mistake in serving the notice, or an error in its terms, may render it invalid. In the recent Scottish case of Prow v Argyll and Bute Council 2012 CSOH 77, the court considered whether rent review notices had been validly served under the lease between the parties.
The pursuers were the landlords of a property in Helensburgh, and the Council were the tenants. Under the lease, the rent was to be reviewed every five years, and was to be triggered by the landlords giving three months’ prior written notice to the tenants. The reviewed rent would be the figure specified in the notice, unless the parties agreed an alternative figure within three months, or unless the tenants served a counter-notice within three months electing to have the rent determined by an independent surveyor.
The landlords’ surveyors sent a letter to the tenants giving notice of a rent review under the lease. However, the letter was incorrect, so they sent a further letter. The parties did not agree an alternative figure, and the tenants did not serve any counter-notice. However, the tenants did not pay the increased rent proposed by the landlords. They continued to pay the same rent. The landlords sued for payment of the balance they claimed was due since the review date, arguing that both letters were valid notices. The tenants’ defence was that neither letter was a valid notice, so the rent had not been validly reviewed.
The “reasonable recipient” test
In determining the validity of the notices, there was a distinction to be drawn between provisions which “specify fundamental requirements which a notice to be given under the lease must meet if it is to be valid”, and provisions which “deal with the imparting of information to another party, but which do not stipulate an indispensable or fundamental requirement for a notice to be valid”. If a notice fails to meet a fundamental requirement specified in a provision falling into the first category, the notice will be invalid. However, if the relevant provision falls into the second category, a defect may possibly be cured by applying the “reasonable recipient” test.
This test was established in the House of Lords case of Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749, in which the court determined the validity of a break notice by interpreting it objectively and asking how a reasonable recipient would have understood it, bearing in mind its context. If a reasonable recipient with knowledge of the terms of the lease would be left in no doubt about what was meant by the notice, despite an error in it, then it would be valid. It is important to note, however, that the error in the break notice was not a failure to meet a fundamental requirement in the lease. If it had been such an error, the “reasonable recipient” test would not have applied.
Were the notices valid?
The landlords in Prow v Argyll and Bute Council sought to rely on the “reasonable recipient” test, but the judge found that it did not apply. He considered the terms of the lease and found that there were six fundamental requirements that had to be met in giving notice of a rent review:
- the notice had to be in writing;
- it had to be given by the landlords;
- it had to be given to the tenants;
- it had to be given three months’ prior to the relevant review date (which was 1 October 2010 or, if the landlords’ failed to give three months’ notice prior to that date, the 28th of any month following that date);
- it had to specify the landlords’ proposed fair market rent; and
- it had to specify the date at which the fair market rent was to be assessed and payable (which was 1 October 2010, whether the review date was that date or the 28th of any month following that date).
The first letter sent by the landlords’ surveyors did not meet all of these fundamental requirements. It wrongly indicated that it was being sent by the surveyors on behalf of a different company to the landlords. It also incorrectly gave notice of a rent review at 1 November 2010, and specified the landlords’ proposed fair market rent at that date, rather than 1 October 2010. Accordingly, the letter was not a valid notice.
The judge also found that, even if the relevant requirements were not fundamental, and the “reasonable recipient” test applied, the errors in the letter would not have been cured by that test. The test will not be met if there is scope for confusion in the reasonable recipient. The notice must communicate the required message clearly and unambiguously, and the reasonable recipient must be left in no doubt whatsoever. The judge found that the letter did not do that.
Happily for the landlords, the subsequent letter sent by their surveyors did meet the fundamental requirements of the lease, and was a valid notice.
This case illustrates the importance of carefully checking the terms of the lease when serving a notice, and making sure that the requirements of the relevant provisions are met and the terms of the notice are correct. If there is an error, the “reasonable recipient” test may not cure it.
To read the court’s decision in Prow v Argyll and Bute Council click here.
The “reasonable recipient” test was applied in the recent Court of Appeal case of Patel and others v MRD Property Developments Ltd, which is considered in this article – ‘Demands for payment - do you have to say ‘please pay’?’.