Noticing the detail

In Ropemaker Properties Ltd v Bella Italia Restaurants Ltd, the High Court held that a tenant’s notice to terminate their agreement for lease (the agreement) was invalid, as it was given only to the landlord and not also to the tenant’s guarantor as the notice clause in the agreement required. The landlord had then served a notice on the tenant to make the agreement unconditional which, given the tenant had not successfully terminated the agreement, was held to be valid.

The agreement, which related to the development of a retail unit at Stane Park in Colchester, was subject to three conditions precedent (CPs), one of them being the landlord serving notice on the tenant (Bella Italia) that the neighbouring unit condition (NUC) relating to a letting of a neighbouring unit to another restaurant had been satisfied. On satisfaction of all CPs the landlord would become bound under the agreement to grant the lease, and Bella Italia bound to take it.

Events unfolded as follows:

• The landlord served notice on Bella Italia in August 2016 to the effect that the NUC had been satisfied. However, this was not done in writing as required by the notice clause and the parties agreed the notice was invalid.
• Bella Italia served notice on the landlord, but not Bella Italia’s guarantor, in May 2017 seeking to terminate the agreement on the basis that the landlord had not satisfied the NUC in time.
• The landlord then served noticed on Bella Italia waiving the NUC condition pursuant to the terms of the agreement and claiming that the agreement had therefore become unconditional.
• Bella Italia disputed the landlord’s notice waiving the NUC condition and served a final notice in September 2017, again seeking to terminate the agreement.

Bella Italia’s May 2017 notice seeking to terminate the agreement was held to be invalid because it did not comply with the formal requirement in the agreement for it to be served on the tenant’s guarantor as well as the landlord. This was the case even though the tenant and guarantor were sister companies, the guarantor was sent an email with the notice provided by Bella Italia to the landlord for its records, and the guarantor had notice of the decision to terminate the agreement by way of board meeting minutes. Unfortunately for Bella Italia, the agreement expressly stated that the notice could not be given by email and it was held on the facts that the guarantor had not waived this formal notice requirement. The judge noted that “[i]t makes no difference that the requirements were substantially complied with or had no apparent purpose or benefit”.

The landlord’s subsequent notice to Bella Italia waiving the NUC was held to be valid and, as a result, the parties were bound by the agreement. The final Bella Italia notice in September 2017 was therefore ineffective.

The case highlights the importance of ensuring that notice clauses are carefully read and complied with. The judge noted that it was "a very technical and unattractive basis" on which Bella Italia’s May 2017 notice was found to be invalid but on the true interpretation of the agreement the notice needed to be served in hard copy on the guarantor and the failure to do so invalidated the notice.

Ropemaker Properties Ltd v Bella Italia Restaurants Ltd [2018] EWHC 1002 (Ch)