Scottish Court of Session Decisions

EXTRA DIVISION, INNER HOUSE, COURT OF SESSION

[2016] CSIH 73

CA50/16

Lady Smith

Lord Drummond Young

Lord Glennie

OPINION OF THE COURT

delivered by LADY SMITH

in the Reclaiming Motion

by

REGENT QUAY DEVELOPMENT COMPANY LIMITED

Defenders and Reclaimers

against

TYCO FIRE & INTEGRATED SOLUTIONS (UK) LIMITED

Pursuers and Respondents

Defenders and Reclaimers:  McBrearty QC; Burness Paull LLP

Pursuers and Respondents: Lindsay QC; Eversheds LLP

16 August 2016

Introduction
[1]        The issue in this case is whether or not tenants have validly exercised a break option in their lease of commercial premises.  The Lord Ordinary held that they had done so and it is against that decision that the landlords now reclaim.

Background
[2]        The tenants are Tyco Fire & Integrated Solutions (UK) Limited (“Tyco”) and the landlords are Regent Quay Development Company Limited (“Regent”).  Tyco took a lease of Unit 3 and Unit 4 of the Glover Pavilion in the Aberdeen Science and Technology Park in 2004.

The Original Lease
[3]        The lease entered into in 2004 was registered on 31 March 2004.  It was a ten year commercial lease and it set out the parties’ respective obligations in fairly standard terms.  Units 3 and 4 were referred to in clause 1.1 of the 2004 lease as “The Premises” and parties’ rights and obligations in relation to them were – as was to be expected - unitary in nature.  For example, a single sum was payable as rent and service charge was not apportioned between the units.  The lease was due to expire on 5 February 2014.  Tyco was entitled to break the lease on the fifth anniversary of their date of entry (clause 2.2) but it did not confer on them any right to break the lease in relation to one unit only.  

The Minute of Variation
[4]        Before the 2004 lease came to an end, parties agreed that Tyco’s tenancy would be extended both in time and in relation to the subjects occupied by them.  Accordingly, by Minute of Variation dated 27 October and 8 November 2011, Tyco and Regent agreed to vary the lease so as to add Unit 1 to the premises as from 31 August 2011, and to extend the period of let to 30 August 2021.

[5]        “Lease” is defined in the Minute of Variation as meaning:

“..the lease between the Landlord and the Tenant dated 24 February and 9 March and registered in the Books of Council and Session on 31 March, all months in 2004 and all documents and agreements supplemental thereto, as varied by these presents;”.

“Premises” is defined as meaning:

“ALL and WHOLE the first floor premises comprising Units 3 and 4 together extending to 3,660 square feet or thereby within Glover Pavilion, Bridge of Don , as more particularly described in the Lease;”

Clause 3 of the Minute of Variation provided:

“3. PREMISES

From the Effective Date the Premises under the Lease shall mean the Premises and the Additional Premises.”,

The “Effective Date” was defined as being 31 August 2011 and “Additional Premises” was defined as comprising Unit 1 of the Glover Pavilion and the use of car parking spaces, additions, alterations and improvements and all landlords’ fittings and fixtures.

[6]        Clause 4 of the Minute of Variation provided:

“4. EXTENSION OF THE LEASE

4.1 The Period of the Lease shall be extended for a period of ten years from the Effective Date to 30 August 2021 and Clause 2.1 of the Lease shall be varied to this extent.

4.2 The Tenant shall have the option to terminate the Lease on the fifth anniversary of the Effective Date on giving not less than six months prior notice to the Landlord (time being of the essence) provided that the Tenant has complied with all financial obligations under the Lease and is not in material breach of any other obligation under the Lease and Clause 2.2 of the Lease of the Lease shall be varied to this extent.”

Accordingly, Tyco were entitled to bring their tenancy of units 1, 3 and 4 to an end on 31 August 2016 provided they gave Regent six months’ notice of their intention to do so.  That right was to end their tenancy of all three units; as with the original lease, the Minute of Variation did not give them the right to terminate their tenancy of an individual unit or units.

The Break Notice
[7]        By letter dated 11 January 2016, Tyco’s agents wrote to Regent in the following terms:

“Tyco Fire and Integrated Solutions (UK) Limited

Units 3 and 4, The Glover Pavilion, Aberdeen Science and Technology Park, Aberdeen (‘The Premises’)

We act for Tyco Fire and Integrated Solutions (UK) Limited (Company Number 01952517) of Tyco Park, Grimshaw Lane, Newton Heath, Manchester M40 2WL, formerly known as Wormald Ansul (UK) Limited, its name having been changed conform to Certificate of Incorporation on Change of Name dated 29 December 2005, hereinafter referred to as the Tenant of the Premises, subject to (a) lease between Regent Quay Development Company Limited and Wormald Ansul (UK) Limited dated 24 February and 9 March and registered in the Books of Council and Session  on 31 March, all months in 2004 (“the Lease”); and (2) minute of variation of lease between Regent Quay Development Company Limited, Tyco Fire and Integrated Solutions (UK) Limited and Wormald Ansul (UK) Limited dated 27 October and 8 November, both dates in 2011, and registered in the Books of Council and Session on 28 June 2012 (‘the Minute of Variation of Lease’).

Pursuant to clause 4.2 of the Minute of Variation of Lease, on behalf and as instructed by the Tenant, we HEREBY GIVE YOU NOTICE to terminate the Lease over the Premises on the fifth anniversary of the Effective Date on giving not less than six months prior notice of termination. Without prejudice we consider that date will be 31 August 2016 and that the lease will terminate on that date but please confirm that you agree.

We also act for all group companies of the Tenant and to the extent that this notice is required to be served by any one or more of such companies in addition to or in substitution for the Tenant, you should consider this notice served for and on behalf of such company or companies.

Please sign and date the endorsement on the accompanying copy of this notice and return to us by way of receipt.”

Regent’s agents wrote to Tyco’s agents on 4 March 2016 – by which time it was too late for Tyco to serve a fresh notice -  advising them that Regent considered the notice to be ineffective and that the lease, as varied, would continue to its ish (30 August 2021).

The Lord Ordinary’s Opinion
[8]        The dispute between Regent and Tyco was presented to the Lord Ordinary – and to this court - as a being an issue of interpretation.  Senior counsel for Regent accepted that the issue was not one of fundamental validity.  He was right to do so.  There is no question, in this case, of the tenant failing to meet a requirement of the empowering document; rather, the issue is whether, viewed objectively and in context, a reasonable recipient would have understood the notice as meaning that Tyco were opting to terminate their tenancy of all 3 units at 31 August 2016: Mannai Ltd v Eagle Star Assurance Company Ltd [1997] AC 749.

[9]        Before the Lord Ordinary, Regent’s case was that there were two errors in the notice of 11 January 2016.  First, the heading mentioned only Units 3 and 4 as being “The Premises” thereby attributing a new meaning to a defined term.  Secondly, “the Lease”, in the second paragraph of the letter, was defined by reference to the original lease rather than to the original lease as varied by the minute of variation.  These errors were such as to raise a real and substantial doubt in the mind of the reasonable recipient.

[10]      Tyco, on the other hand, contended that although there was an error in the heading of the letter, there was no second error and the evident intention of the letter was to exercise the break option in the lease as varied by the minute of variation; as discussed in Mannai, absolute certainty or absolute absence of ambiguity was not required.

[11]      The Lord Ordinary found in favour of Tyco.  He did not accept there was a second error in the letter; if the notice was read as a whole, it was readily apparent that the sender was fully aware of the minute of variation and its terms.  The reasonable recipient would construe the reference to the lease in paragraph 1 as a reference to the lease as varied and constituting the existing contract between parties.  The idea that such recipient would construe it as referring to the lease prior to variation - which no longer in fact contained the terms of parties’ contract – was too far fetched.  So far as the heading was concerned, it was clear that notwithstanding the lack of reference to Unit 1, since the right expressly being exercised was the right contained in clause 4.2 of the minute of variation, the notice was not ambiguous and did not lack the requisite clarity.

The Reclaiming Motion
[12]      Parties were, again, agreed that the issue for the court was how the notice of 11 January 2016 should be construed, having regard to how the reasonable recipient would, in context, have understood it, as discussed and explained in the case of Mannai Ltd v Eagle Starr Assurance Co. Ltd.  

[13]      Senior counsel for Regent submitted that the context included that the notice was drafted by solicitors; that meant that the reasonable recipient would be entitled to assume that the words used had been carefully and deliberately chosen.  He, again, submitted that the construction exercise required recognition of there being two errors in the notice; the Lord Ordinary’s reasoning was flawed by his having failed to accept that there was an error in the definition of “The Lease” in the first paragraph of the notice.  He thus failed to consider the possibility that Tyco were, in the notice, attempting to do something they were not entitled to do, namely to terminate their tenancy in respect of two units only.  They could simply have made a mistake as to their contractual rights; or they could have been doing so deliberately, as a ‘try on’.  That was not so improbable that the reasonable recipient would reject it; he would be left in reasonable doubt as to the meaning of the notice.  In any event, even if the Lord Ordinary was right to focus on the error in the heading, it alone was of such significance that it would have caused doubt in the mind of the reasonable recipient.

[14]      Conversely, senior counsel for Tyco submitted that the Lord Ordinary had erred neither in his approach to construction nor in his conclusion.  The notice was sufficiently clear and unambiguous when viewed in context.  The reference to “The Lease” in paragraph one was, at worst for Tyco, a clumsiness of expression but the Lord Ordinary had been correct to read the notice as a whole and conclude that the reasonable recipient would be in no doubt that Tyco were exercising the right to terminate conferred by the Minute of Variation; “The Lease” was, clearly, a reference to the original lease as amended in 2011.  Further, the error in the heading was immaterial and the Lord Ordinary was correct to conclude that the reasonable recipient would have seen it as such.  It was important to focus on what would have been in the mind of the reasonable recipient.  Whilst that could involve considering such alternative explanations as might, objectively, have occurred to such a recipient, it was important to avoid speculation about the subjective intentions of the person serving the notice: Mannai Investment Co Ltd, Lord Steyn at p.772.  Regent’s approach was, he submitted, improbable as it flew in the face of the terms of the lease as varied, would give rise to practical difficulties given that the three units had been aggregated for the purposes of the tenancy, and was such as could have been expected to be the subject of express provision.  Regarding the suggestion that this could have been seen as a ‘try on’ by Tyco that was, in the circumstances, too improbable to be worthy of consideration.  The Lord Ordinary had explained his reasoning and it betrayed no error of law. 

Discussion and Decision
[15]      At the end of the hearing we gave our decision – that the reclaiming motion was refused – and undertook to provide written reasons at a later date.  This we now do.

[16]      Those reasons can be shortly stated.  As was observed by senior counsel at the close of his submissions, the point is a short, sharp one and is capable of determination by what might be termed a matter of first impressions.  To flesh that out a little, that is not to adopt a casual approach but it is a matter of assessing what would have been the impression immediately made on the reasonable recipient who would have been informed by knowledge of the relevant context^[1].  That recipient would, in this case, have been the reasonable commercial landlord who would, before opening the notice, have known:

• that, by 11 January 2016, the date for the expiry of the lease entered into in 2004 was long since past and by that time, parties’ contractual rights and obligations were contained in the whole terms of the 2004 and 2011 documents read together (the original lease read together with the Minute of Variation);
• that Tyco were tenants of units 1,3 and 4 under contractual terms which were unitary in relation to those premises;
• that Tyco had never had any right to terminate their tenancy in relation to individual units;
• that clause 4.2 of the Minute of Variation  provided only for termination of Tyco’s whole tenancy;
• that, to exercise the clause 4.2 right, Tyco required to provide written notice at least six months prior to 31 August 2016 but the notice did not need to be in any particular form;
• if Tyco were going to exercise the break option, it would be sensible to service the clause 4.2 notice well in advance of the end of February 2016 – notice in the course of January 2016 would not be at all surprising;  and
• that if Tyco were, after 31 August 2016, to be tenants of unit 1 only, parties would require to enter into a new agreement as the terms of their existing agreement were not divisible and made no allowance for partial severance of the tenancy.

Against that background, what would the reasonable landlord have understood as being the meaning of the letter received?  We accept that (s)he would, no doubt, observe that the heading of the letter – not the notice itself (which is contained in paragraph 2 of the letter) – refers to only two of the leased units.  But on proceeding to read the whole letter, it would be clear that the heading was simply incomplete; what the tenant plainly intended was to intimate that the right to terminate conferred in clause 4.2 was being exercised.  That was, for the purpose of the landlord/tenant relationship, the operative part of the letter.  It was not as if any part of the letter sought to open negotiation for the termination of Tyco’s tenancy of only two units and retention of a tenancy of unit 1.  We can accept that (s)he might have paused in respect of the definition of “the Lease” in paragraph one.  However, that pause would, we consider, have been a brief one.  We agree with the Lord Ordinary that, on reading the letter as a whole, there would have been no real doubt.  It was simply too improbable that Tyco were serving notice under a lease which had expired, particularly given the specific reference to the then current break option clause in paragraph 4.2 of the Minute of Variation.  Regent’s approach in submissions focusses unduly on the words and involves a failure to stand back and consider what the words mean when considered in the overall context in which they were used.  The meaning of what is said can be unambiguous despite the use of the wrong words (Mannai Investment Co Ltd, Lord Hoffman at p.774D); this is, we consider, such a case.

[17]      We are not persuaded that the fact that the letter came from a solicitor would lead him to assume that these expressions were deliberately and carefully used.  That would mean that the solicitor was trying to achieve something that, as a lawyer, (s)he would be well aware the client was not entitled to.  Engaging in what would in effect, be a type of concealment by way of a ‘try on’ is not conduct which the reasonable recipient would, we think, attribute to a solicitor.

[18]      We were, accordingly, satisfied that the ambiguities and doubts suggested on behalf of Regent were theoretical rather than such as would, in reality, have existed in the mind of the reasonable landlord.  No reasonable landlord would, in all the relevant circumstances, have been misled by the error in the heading and the perhaps infelicitous use of the definition of “the Lease” in paragraph 1 of the letter.  (S)he would, to the contrary, have had no reasonable doubt that Tyco were intimating that they were exercising their right to cease being the tenant of units 1, 3 and 4 on 31 August 2016. 

It is for these reasons that we refused the reclaiming motion and made an award of expenses in favour of Tyco.