UK: Service Of Notices- Does It Matter?

Ben Cleuch Estates Ltd v Scottish Enterprise

The case concerns a dispute between Ben Cleuch, the Landlords and Scottish Enterprise ("SE"), the Tenant. The property was a commercial property in Dundee and the point in dispute was whether SE had validly terminated the lease of the Premises by exercising a break option, or alternatively whether Ben Cleuch were personally barred from denying that the break option was validly exercised. The decision would impact on whether SE were bound to a further ten year lease at a rent in excess of £200,000 per annum.

The lease was entered into in 1991 and contained a provision that SE were entitled at any time prior to 2nd February 2005 to give Ben Cleuch at least one year's written notice of termination of the Lease. In May 2003 SE contacted their solicitors asking for advice in relation to the break clause. Accordingly, their agents noted that in order to determine the Lease, SE must serve written notice on Ben Cleuch, by first class recorded delivery no later than 2nd February 2005. The Notice required to be addressed to Ben Cleuch's registered office. Consequently SE instructed their agents to serve the Notice to Quit on Bonnytoun, the company they understood to be their landlord. In fact, Bonnytoun were the parent company of Ben Cleuch and Ben Cleuch was the actual landlord.

There was no doubt that the two companies were closely related, Ben Cleuch and Bonnytoun had the same registered office and the same Managing Director. Following the service of the Notice on Bonnytoun it was forwarded to Ben Cleuch (given they were at the same address) and therefore Ben Cleuch were aware of the intentions of SE. The Managing Director (in his role as Managing Director of Ben Cleuch) sought legal advice. Ben Cleuch's solicitors advised that as the Notice had been sent to the wrong company then that Notice had been invalidly served and they were therefore not bound by its terms.

The matter first came to Court in 2006 where it was decided, perhaps somewhat reluctantly, that the erroneous addressing of the Notice to the wrong company must be viewed as more than a mere technicality. The parties had entered into a contract where it had been agreed that the Notice was to be served on Ben Cleuch at their registered address and it was not open to the Courts to re-write the terms of the contract. In all the circumstances, SE could not be deemed to have intimated effective service on Ben Cleuch.

SE appealed the ruling and the Appeal Court ruled that the identity of Ben Cleuch had been consistently misrepresented to SE through correspondence and specifically, through incorrectly headed rent invoices. Ben Cleuch had been entitled to rely on such correspondence and were not required to make any further enquiries as to the identity of the landlord. Under the circumstances Ben Cleuch were personally barred from denying that the break option had been validly terminated and crucially, SE could exit the lease having validly exercised the break option.

The original action considered the depth of investigations which should have been carried out when ascertaining who the landlord was. Specifically, it brought into issue the actings of SE's own solicitor, particularly his failure to carry out a Company House search on the appropriate Landlord at that particular time, and thereafter his proceeding to rely only on invoices produced. It is perhaps surprising that the Appeal Court did not take a similar view. They did not appear to consider that a prudent agent, knowing what the consequences to SE would be, should have checked the details of both the landlord and their registered office.

The Inner House ruling must not be seen as a "get out of jail free" card for parties who fail to pay attention to the details. Rather, it should be treated as a warning to all (tenants and agents) that when dealing with commercial leases, where Landlords can and do frequently sell their interests and where managing agents are involved, it is prudent to check exactly who the Landlord is at any given time when serving Notices. It could be argued that had the facts been slightly different then the consequences to SE could have been severe. "Take care" must be the lesson.

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