Although often tucked away at the end of a contract, the notice clause is fundamental. Failure to comply can mean that valuable rights are lost, potentially for good.
The purpose of a notice clause is straightforward – it sets out how one party to the contract may give notice to another. A party may need to give notice of a change of a company’s registered address or exercise a significant right, perhaps to break a lease or an option to purchase. It is not difficult to see how expensive a mistake could be particularly in a high value commercial contract or if dealing with land.
Notice clauses can be complex but there are 5 key elements to consider:
Who should exercise and who should be served? It should be fairly easy to identify the “Who” but even this element has its pitfalls. If dealing with property, beware the registration gap. In Sackville UK Property Select II (GP) No.1 Ltd v Robertson Taylor Insurance Brokers Ltd [2018] EWHC 122 (Ch) the Court held that the assignee of the lease owned only the beneficial interest in the property and was not entitled to serve a break notice. The lease continued for another 5 years. A mistake can mean that the opportunity to serve notice is lost temporarily or perhaps at all.
Ideally the key dates will be set out clearly in the notice clause or elsewhere in the contract. It might be on a particular date or within a specific period. There may be no precise date and it may be possible to give notice on a rolling basis.
By post, email, fax, hand-delivered, in writing, standard form or maybe nothing is specified. Use of s196 of the Law of Property Act 1925 is fairly helpful: the notice must be in writing, either left at or sent by registered post to the last known address/business address and is deemed served at the time that the registered letter would usually be delivered. So far so good but even s196 is not without risk – the registered letter must not be returned undelivered. If you are up against a deadline, this is a risk. Less helpful are contradictory sub-clauses or none at all. In those instances, legal advice should be obtained in order to explore and establish exactly how notice should be served. Extreme circumstances could warrant using less traditional service methods. The use of WhatsApp as a service method went unchallenged in the recent Gray v Hurley [2019] EWHC 1636 (QB) decision and the use of other social media could follow.
Attention should be paid to where a notice should be served. Although notice may be given to a party, it is not unusual to see an alternative address for service. This may be care of a solicitor/other professional or at an operational address rather than a registered address. If there is a dispute over “Where” a Court will consider whether the notice has been brought to the attention of the correct recipient. If so, an error may not be fatal although any legal argument is likely to be expensive.
Some notices are straightforward but others are far more complex with a variety of attached conditions. A common example is the requirement for all rent to be paid in full under a lease before a tenant can exercise a break option. Even if the notice is served exactly as set out in the lease, if the rent is not paid in full then the notice is likely to have no effect. The parties are free to agree whatever conditions they like during the pre-contract negotiations however they should take care to make sure that they understand exactly what is required. It is not unusual to come across a complex set of pre-notice conditions some years after they were agreed and shortly before a notice date when the likelihood of being able to comply may be slim at best.
When disputes arise, the Court tends to apply a common sense and commercial approach. The Mannai decision confirmed that a minor defect may not invalidate a notice if a reasonable recipient with the relevant background is capable of understanding the intention behind the notice. The test itself could raise more questions that the clause itself. Is the defect minor? What is the relevant background? What was the intention? The key notice elements all go hand in hand and one flaw could be fatal. Most would agree that serving notices is a risky business and best left to professionals to make a judgment call. It may be that there is no correct answer to a (potentially) million-dollar question…
For any more information please contact Sophie Michaelides on s.michaelides@ashfords.co.uk.
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