4 Break Clauses
4.09 The parties to a long fixed term farm business tenancy will be well advised to include break clause provisions in the agreement.16 To take just two common examples: (i) On the death of either party to a fixed term tenancy the tenancy will vest in the executors or personal representatives of the deceased landlord or tenant, and will continue until its contractual term date.
The parties may wish to provide for this eventuality, especially in a long fixed term, by including a break clause allowing either party to give notice to terminate following the death of the tenant. (ii) Similarly, the 1995 Act makes no provision for repossession of part of a holding during the term, and the parties may wish to provide a break facility in the tenancy to enable a part of the farm to be repossessed for eg non agricultural use by the landlord.4.10 Where a break clause is included in a Farm Business Tenancy for more than two years any notice of termination given pursuant to it will be invalid, unless it is in writing and is given at least 12 months before the date on which it is to take effect.17 There is no minimum length of notice for the exercise of a break clause in a tenancy of 2 years or less.
4.11 No maximum period for the break notice is specified, but the notice must conform to the contractual terms in the tenancy agreement under which it is given. In particular, the relevant period of notice will be calculated back from the contractual date on which termination can take place. The courts will ignore a minor misdescription as to the date on which it is to take effect in a break notice purporting to exercise a contractual break in a fixed term lease. In Mannai Investment Co. Ltd v Eagle Star Life Assurance Co. Ltd.18 a commercial lease contained a break clause entitling the tenant to terminate the tenancy on serving ‘not less than six months notice in writing...such notice to expire on the third anniversary of the term commencement date’.
The tenant gave notice to determine the tenancy on 12 January 1995, whereas the anniversary of the commencement date was 13 January. The notice specified a date one day too early. The House of Lords held (by a majority) that a notice purporting to exercise a contractual right to determine a lease would be effective, providing that it would unambiguously inform a reasonable recipient how and when it was to operate. The majority applied the test applied to notices to quit and adopted the question posed by Goulding J. in Carradine Properties Ltd v Aslam19 viz. ‘...is the notice quite clear to a reasonable tenant reading it? Is it plain that he cannot be misled by it?’. This approach would appear to be consistent with the approach to the form of notices to quit taken in cases under the Agricultural Holdings legislation, where the courts have allowed a similar latitude for minor misdescription of eg the termination date in notices to quit.204.12 The notice must be construed against its contextual setting, and the reasonable landlord and tenant must both be taken to know the terms of the lease.21 It was stressed in the Mannai Investments case that, as the break notice will have unilateral operation the conditions under which it may be served must be strictly complied with.22 To be valid, the break notice must also comply with the express terms of the lease – for example as to its form or any preconditions to service.23 A tenant’s break clause will commonly, for example, provide that its exercise is dependant upon the tenant having complied with all of the obligations under the tenancy agreement.24 Such clauses will be construed strictly against the tenant – substantial compliance will not suffice.25
4.13 The operation of these rules can sometimes be problematic, especially in relation to long fixed term tenancies for more than two years. Where the landlord wishes to include a break provision to take advantage of development opportunities, he will have to give at least 12 months notice to terminate, ending on the date specified in the lease for the possible ‘break’. This may be inopportune, and it may be more advantageous, in these circumstances, to either let the whole holding on a shorter fixed term of not more than 2 years, with a shorter break notice provision, or to let the holding in separate lots, with the land earmarked for possible development let separately under a short term farm business tenancy of not more than 2 years.