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Landlords: Take Notice!

29 June 2016

The decision of the High Court in Vanquish Properties (UK) Limited Partnership –v- Brook Street (UK) Limited provides a stark reminder of the strict requirements for serving a valid break notice and the traps into which the unwary can easily fall.

The case concerned premises on Fenchurch Street, which were originally let by the City Corporation as freeholder to Brook Street as tenant. The lease contained a landlord’s right to break on 27 September 2016 on six months’ notice. The premises were to be redeveloped and the City Corporation granted an overriding lease to the developer, such that the developer would become Brook Street’s direct landlord. The overriding lease described the lessee as “Vanquish Properties (UK) Limited Partnership”. As soon as the overriding lease was granted, the solicitors acting for Vanquish purported to serve the break notice on Brook Street. In the notice, they stated that they were instructed by and were serving notice on behalf of  “Vanquish Properties (UK) Limited Partnership, the landlord of the property.”

The problem with this (as the tenant astutely identified) was that, despite what the overriding lease purported to say, it was legally impossible for Vanquish Properties (UK) Limited Partnership to be the tenant under the overriding lease (and, by extension, Brook Street’s landlord). The reason for this is that a limited partnership is, in essence, a form of common law partnership and a partnership is simply shorthand for a collection of individual partners. A limited partnership (unlike a limited company or a limited liability partnership) is not a legal entity in its own right and cannot hold a lease. As such, despite what the overriding lease purported to say, the tenant (and by extension Brook Street’s landlord) was not Vanquish Properties (UK) Limited Partnership, rather it was Vanquish Properties GP Limited, which was the general partner of the Limited Partnership and was (as a limited company) capable of holding the lease.

Relying upon this argument, the tenant challenged the validity of the break notice. It argued that the entity on whose behalf the break notice was purported to have been served was not an entity at all. It was not its landlord and in those circumstances the break notice could not be valid. The Court agreed. The landlord could only be Vanquish Properties GP Limited and the notice did not say that it was being served on behalf that entity. Vanquish’s argument that the defect in the notice could be cured because a “reasonable recipient” would have understood what was intended was also rejected – the Court found on the contrary that a reasonable recipient would have been confused on receipt of the notice. Vanquish had accordingly lost the right to break the lease.

Limited partnership structures have become an increasingly common form of property investment vehicle over recent years and it is easy to forget that (unlike limited companies or limited liability partnerships) they are not legal personalities. Landlords and tenants need to fully understand ownership structures before notices are served as the courts are unlikely to be forgiving of mistakes.

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