Commercial parties to a contract are generally expected to be more aware of their legal rights and obligations than consumers or individuals. In cases concerning commercial leases the courts have traditionally been strict in their interpretation of clauses and the ability of parties to do things which are not exactly in line with the contract’s terms. However, the recent case of Gateway Assets Ltd v C. V. Panels Ltd [2018] CSOH 48 is the latest of a number of cases which demonstrate that the court will look at the context of the agreement rather than just the literal wording of its terms.

Summary of facts

The case concerned a commercial lease with a clause allowing the tenant to terminate it early. Such clauses are generally referred to as “break options”. This option had to be exercised by the tenant serving notice on the landlord at least six months prior to the 5^th anniversary of the lease. Three years into the lease the landlord sent a letter to the tenant informing them that they had appointed an agent who were authorised to deal with “all aspects of management including the collection of rent and service charges”. The tenant was asked to send “all communications and correspondence” to the agent.

The tenant served a break notice on the landlord’s agent by recorded delivery less than six months before the 5^th anniversary. The landlord argued that the notice was ineffective as it was too late, was not in proper form and was not sent to the correct recipient: it should have been sent to the landlord itself rather than its agent. The tenant then claimed that they had actually served a separate notice by standard post eight months before the anniversary. Again this was allegedly sent to the landlord’s agent. The landlord averred that their agent had no record of receiving that notice so it was not effective.

Following a hearing of evidence Lord Clark produced an opinion addressing a number of points.

Proof of sending and receipt of a notice

The landlord submitted that the onus was on the tenant to prove that the eight month letter had been both sent and received. The Court of Session in Chaplin v Caledonian Land Properties Ltd (1997 SLT 384) held that where the court is satisfied that a letter was sent to a particular addressee then it is presumed to have been received unless there is sufficient evidence to rebut that presumption. In the current case the landlord’s agent had given evidence on its procedures and processes for receiving mail and invited the court to find that the presumption was rebutted.

On the facts Lord Clark found that the tenant had not proven the eight month letter was sent. However, even if he had found that it was sent then he would still not have been satisfied that it was received. While there is a presumption that a notice is received, this can be rebutted by evidence which demonstrates how the recipient handles their mail. The landlord’s agent had given detailed evidence on how the notice would have been handled by their office staff if it was received. There were also contemporaneous emails between witnesses for the landlord discussing their understanding that they had not received a break notice. Together this satisfied the court that if the letter was sent then it must not have been received by the landlord’s agent or else they would have known about it. Lord Clark noted that it is possible that the notice was lost in the post but this would mean that it was never received and was therefore not effective in any case.

Issues of service were not considered in respect of the six month notice. Lord Clark however clarified the position regarding “deemed service” (when the lease agreement allows parties to treat service as successful). He specified that a clause which says service is deemed successful if the notice is sent by recorded delivery supersedes the common law rules on proof of sending and receipt. In such cases the sender need only prove that the letter was sent and the clause would operate as if it was received, even if it was not. However, this was not relevant to the current case since the eight month notice (which was the only one in dispute) was not served by recorded delivery and so the deemed service clause could not apply.

Was the notice valid?

On the hypothesis that the letter was in fact sent and received, Lord Clark went on to consider whether its terms could constitute a valid notice. He agreed with the tenant’s submissions that construction of a notice is to be interpreted objectively from the perspective of a reasonable recipient taking into account the “contextual scene”. This was held so by the court in the recent case of Hoe International v Andersen (2017 S.C. 313). In that case the court discussed that it should take a purposive approach when interpreting terms in a contract relating to notices.

The lease agreement set out the information which had to be given in the break notice. The landlord submitted that the notice which was served was not worded correctly to declare that the tenant was terminating the lease. The letter stated: “We herewith give notice of our intention to terminate”. The landlord argued that “intention” was an ambiguous phrase which did not satisfy the requirement to state that the lease was actually being terminated. Lord Clark held that the words used in the break notice were adequate to convey to the recipient, who was aware of the relevant surrounding circumstances, that they were making use of the break notice clause. There was no requirement in the lease to serve a “pre-break notice”, so the reasonable recipient would not interpret the letter as being something other than a notice that the lease was definitely being terminated in terms of the lease agreement.

Service on the landlord’s agent

Parties were also at odds as to whether the break notice could be validly served on the landlord’s agents rather than the landlords themselves. Reference was made by the landlord to Ben Cleuch Estates v Scottish Enterprise (2008 S.C. 252). In that case it was held that where the lease agreement required service on the landlord, it was not effective to serve notice on any other party. However, Lord Clark distinguished the current facts from those in Ben Cleuch Estates. He turned again to the context of the case and the fact that the landlord had advised the tenant that they should communicate only through the landlord’s agent. The terms of the lease agreement did not specify that the notice had to be served at the landlord’s registered address. There was nothing in the circumstances which suggested that service on the landlord’s agent should not be effective.

Lord Clark also held that the landlord was personally barred from claiming that their agent did not have authority to accept notice on their behalf. Their letter which informed the tenant of the new agent was in wide terms and was unqualified. It established apparent authority on the part of the agent and this could not now be revoked.

This case is a welcome clarification of a number of points which can often be in dispute when it comes to serving notices in terms of a commercial lease. Of course, it is preferable for all parties that notices are served timeously and in compliance with the lease agreement’s terms so as to avoid any doubt or dispute to begin with, and given the importance of such notices landlords and tenants should consider seeking legal advice.