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Make sure the break notice for your Commercial Lease is correct Solicitor Scotland

Commercial leases frequently include break options due to shifting market conditions and the economy. Tenants or landlords may be able to terminate the lease before the prearranged date, or both parties may be able to use this option. The party wishing to end the lease must give the other party written notice that they intend to end the lease early. 

Break notices must be served according to stringent guidelines, and the courts have the authority to construe them harshly. If you make even the smallest mistake, you can lose your freedom! 

The need for properly draughting break notices is demonstrated in the Sheriff Court case of Hingston & Others v Craigellan Assets Limited [2022] SC STO 35.

Context

The individual partners of the law firm Graeme Murray & Co. were the pursuers. They entered into a contract with Craigellan Assets Limited, the Aberdeen property’s landlords, in 2009, whereby they agreed to be held jointly and severally accountable for all of the tenants’ lease-related duties. Tenants have the option to terminate the lease on November 24, 2014, and November 24, 2019, as long as they give the landlords six months’ written notice of their desire to do so. 

In 2016, the legal firm was placed under sequestration. Hingston bought the company’s assets and used them to start Hingston’s Law Ltd. (“HLL”), another legal practice. After the sequestration, HLL took possession of the Aberdeen property and fulfilled all of the tenants’ responsibilities, including rent payments. 

The landlords received a break notice from HLL agents in March 2019 with plenty of time to adhere to the notice term. Using the phrase “agents for and on behalf of (HLL),” the communication and the break notice mentioned HLL as the client but referred to the lease between the pursuers (not HLL) and the defenders. Since the notice had not been served by the tenants by the lease and did not adhere to the terms of the agreement, the landlords argued that it was invalid. The pursuers acknowledged that neither a sublet nor an assignment of their interest in the lease to HLL had been made. 

Was the break notice enough to end the lease?

After considering the situation, the sheriff concluded that the lease’s break clause needed to be precisely followed. “The Tenant shall be entitled to terminate this Lease,” the lease stated. The message made it very obvious that it was sent on HLL’s behalf. Despite using the space, purchasing the assets of the former legal practice, and carrying out all of the tenant’s responsibilities under the lease, HLL was not the tenant under the terms of the agreement.

“The lease was between two specified parties who had agreed contractual terms in a commercial matter,” the sheriff said. There would be a great deal of ambiguity and uncertainty in the business sector if third parties had the authority to give break notifications and terminate the contractual connection.  Priority was given to the contractual provisions controlling the connection. According to the Sheriff, the sequestrated partnership should have issued the notification rather than HLL, as stipulated in the lease. Strict respect for the terms of the lease is required in cases when a notice would fundamentally alter the parties’ relationship. As a result, there was a heightened requirement for stringent compliance due to the nature of the notice in this particular situation.

Hingston provides an example of how important it is to adhere to the lease’s precise break clauses. After acquiring the assets and fulfilling the tenants’ lease obligations, HLL thought it had acquired an interest in the lease. However, the breach notice did not meet the lease criteria and contained inadequate information. Tenants who make mistakes in their break notices may be locked in for the balance of their lease or until the next break date.

The ruling in Hoe International Ltd v. Andersen highlighted the necessity of strictly adhering to the conditions of the lease for notices that have “drastic” repercussions, including break notices that notify the opposing party of the lease termination. Otherwise, like in Hingston, notices might not be valid.

Change in the future?

In the Draft Leases (Automatic Continuation etc.) (Scotland) Bill, the Scottish Law Commission acknowledged the drawbacks of not informing either the landlord or the tenant of the change. According to the bill, if a landlord or tenant’s interest is transferred to a new landlord or tenant and the other party has not been informed of the change, the former landlord or tenant may receive any break or termination documents from the previous landlord or tenant until the new parties have given written notice of their names and mailing address. The break notice or termination document is regarded as having been delivered to the new renters or landlords in certain circumstances.

This clause, which stops parties from being denied a “break” choice when they are not aware of changes in the landlords or tenants, seems to be much appreciated. It remains to be seen if the Bill will become law, however, it is part of the Scottish Parliament’s 2024–2025 program.

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