Dukeminster Limited v West End Investments (Cowell Group) Ltd
The validity of the section 25 notice
In anticipation of the expiry of the lease’s term, the landlord instructed its solicitors to serve a section 25 notice on the then tenant, Dukeminster (UG) Limited. When drafting the notice however, the solicitor in question carelessly omitted the “UG”, and the notice was thereby addressed to ‘Dukeminster Limited’, the tenant’s holding company.
Following receipt of the notice, Dukeminster (UG) Limited instructed its solicitors to serve a section 26 request for a new tenancy on the landlord. The request pointed out that the section 25 notice had not been served on Dukeminster (UG) Limited and was therefore invalid.
It is worth noting that following the commencement of proceedings, Dukeminster (UG) Limited assigned the lease to its holding company, Dukeminster Limited. Thereafter, Dukeminster (UG) Limited no longer had any interest in the proceedings. The directors of Dukeminster Limited are also the directors of each of its subsidiaries, including Dukeminster (UG) Limited.
The landlord maintained that the error as to the addressee of the section 25 notice was a typing error and no reasonable person in the position of the board of directors of either Dukeminster Limited or Dukeminster (UG) Limited could reasonably have misunderstood for whom the notice was really intended.
However, the tenant claimed that the purported mistake was a tactical ploy intended to induce the tenant to give up possession of the lease, particularly as the section 25 notice contained unfavourable lease renewal terms. The tenant was particularly puzzled by the error as it claimed that notices had always been addressed and served correctly in the past and the landlord routinely demanded rent from the correct company.
The judge chose to accept the landlord’s argument and found that the tenant’s reaction was not a reasonable reaction to what he claimed was “clearly a simple error”. The judge highlighted the fact that the landlord’s solicitor had made a careless mistake but that the error did not obscure what was intended by the landlord; i.e. to serve a section 25 notice on the then tenant, Dukeminster (UG) Limited. A reasonable recipient would have had no reasonable doubt as to how the notice was to operate and in respect of which company. If the mistake on the notice was deliberate, then it must have involved the collusion of the solicitor responsible for drafting and despatching it. The judge claimed that this would be extraordinary conduct from a solicitor and it would have been unreasonable for the directors to have thought it to be a possibility.
Having held that the landlord’s section 25 notice was valid, the Court turned to the terms of the new lease. Of significant note was the order by the Court that the lease would have a rent review after five years on an upward/downward basis.
The current lease had no rent review clause and the judge concluded that in this particular case, in the absence of a special reason or any evidence affecting the landlord’s capital investment, the upwards/downwards option was the more appropriate. The judge found no evidence of any circumstances that might displace the inherent fairness of allowing the market to govern the rent on review, and thereby produce a higher or lower figure. In taking this approach, the judge stressed his awareness that the Court was not following the most commonly adopted option of an upwards only review.
The Court is required to set rent at a level which “…having regards to the terms of the tenancy…, the holding might reasonably be expected to be let in the open market by a willing lessor…
”. The judge in this case found no evidence that there would not be a willing lessor for a lease with a both upwards and downwards review clause. Therefore, the judge concluded that the appropriate and inherently fair and reasonable rent review clause was upwards or downwards, to account for market changes in either direction.
For further information please contact Trish Kempson a partner in our Northampton real estate department on 01604 463352 or click here
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