Yet another case which illustrates the potential cost of getting a break notice wrong. In this instance the court was asked to consider the validity of a notice served by an equitable assignee during the registration gap. The first question was whether the correct party had given the notice. The court went on to consider whether, in law, the notice had been given by or on behalf of the assignor.
Under section 27(1) of the Land Registration Act 2002, legal title to registered land does not pass to a buyer until the relevant registration requirements have been met. Between the date of sale and completion of registration (the "registration gap"), the seller holds the legal title on trust for the buyer, who has only an equitable interest in the land.
The judgment in Sackville UK Property Select II (GP) No.1 Ltd and another v (1) Robertson Taylor Insurance Brokers Ltd (2) Integro Insurance Brokers Ltd  EWHC 122 (Ch) relates to a 10 year lease granted by Sackville to Robertson Taylor in March 2013 at an initial rent of GBP 219,575.03. The lease includes a conditional option for the tenant to break on 14 March 2018 (the "Break Date") on not less than nine months' prior written notice. The lease is registered at the Land Registry.
Following the acquisition of Robertson's business by the Integro Goup the tenant applied for and was granted licence to assign the lease to Integro Insurance Brokers Limited ("Integro"). The assignment was completed on 29 March 2017 and formal notice of the transaction given to Sackville on 20 April.
On 2 May 2017 solicitors served a notice on Sackville, on behalf of Integro, purporting to terminate the lease on 14 March 2018.
Contrary to the terms of the licence to assign, which required Integro to apply for registration of the transfer within 10 business days of completion, the application to the Land Registry was not made until July 2017. Integro was registered as proprietor of the lease on 7 July 2017.
Sackville asserted that the tenant's break notice was invalid. The lease would therefore continue until the contractual term ended on 13 March 2023.
Subsequently, Sackville issued a claim for a declaration that the lease would not determine pursuant to the break option, followed by an application for summary judgment.
The court's decision
The court first considered the question: by whom, in the circumstances, the break notice should have been given?
The landlord contended that Robertson should have served the notice because title to the leasehold estate remained vested in it at the relevant time. Integro did not acquire the legal interest until the later date of registration of the assignment.
One of the counter-arguments advanced by Robertson and Integro (both of whom were defendants in the proceedings) was that the effect of the Landlord and Tenant (Covenants) Act 1995 (the "1995 Act") was to entitle an equitable assignee to exercise the option to break.
The judge rejected the argument. As at the date of service of the break notice, Integro was not the successor in title of Robertson as defined in the lease. The 1995 Act did not operate so as to change the meaning of the lease. The break notice should therefore have been given by Robertson which held the lease on trust for Integro.
The next question considered by the court was whether in law the break notice was given by or on behalf of Robertson.
Sackville asserted that the notice was served by solicitors expressly on behalf of Integro as assignee of the lease.
The defendants' position was that the solicitors were authorised to serve a notice on behalf of Robertson and so it did not matter that they had no actual intention to do so. Alternatively, because Integro's requirement was that a valid notice should be served, it was arguable that Integro intended it to be given on behalf of Robertson.
The court held that, on the evidence, this was plainly not the case. Neither the individual solicitor concerned nor the person instructing him intended the notice to be given on behalf of Robertson.
Sackville also asserted that no reasonable recipient of the notice in its own position would have concluded that the notice must have been given on behalf of Robertson rather than Integro.
The defendants relied on the factual context in an attempt to rebut Sackville's position. Sackville knew that the solicitors acted for both Robertson and Integro, both companies had the same address on the licence, the same director signed the licence and assignment on behalf of both companies and the landlord had seen that the assignment was not in the form appropriate for transfer of a registered lease.
The defendants' arguments were rejected by the court. The reasonable recipient would have been aware that Integro had covenanted in the licence to apply for registration within ten business days of the date of assignment. It would have assumed that Integro had complied with its obligations and been registered from date of receipt by Land Registry, making it the correct person to serve the break notice. In the notice of assignment, Integro's solicitors instructed Sackville to send all future rent demands to Integro. Taking these factors into account, the reasonable recipient would be most unlikely to understand that the notice was meant to have been served by Robertson and that the name of Integro was a mistake.
The landlord was entitled to summary judgment.
The registration gap is one of the many issues to be considered when dealing with break notices. If service of a notice is likely to be required shortly after completion of a property transaction, it may be appropriate to include relevant provisions in the contract. The seller may agree, for example, that the buyer has authority to act as its agent for the purpose of serving notices until registration is completed at the Land Registry.
The article first appeared in our Real Estate Bulletin - June 2018.
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.