Lujo Properties Ltd v Gruve Ltd: Why an undelivered pre-irritancy notice cannot be relied on

An important Sheriff Court decision on effective service of notices under a commercial lease looks at the circumstances in which deemed service provisions can fail.

In the case of Lujo Properties Ltd v Gruve Ltd, the landlord of a restaurant premises on Sauchiehall Street sent a pre-irritancy warning notice to the tenant by recorded delivery post due to accumulating rent arrears under the lease. However, that notice was never received by the tenant. It was returned by Royal Mail to the landlord’s solicitors three days after it was posted. The landlord, despite knowing the pre-irritancy notice was not delivered, failed to disclose this to the tenant and sought to rely on the undelivered pre-irritancy warning notice when serving an irritancy notice to terminate the lease.

The tenant contested the validity of the pre-irritancy notice, arguing that service had not been effected because the notice was never delivered to/ received by the tenant. Indeed, the tenant was not aware the pre-irritancy notice had been issued at all until the landlord attempted to terminate the lease.

A pre-irritancy warning notice has a dual function: it’s a notice under the 1985 Act and also under the lease.

The 1985 Act 

The Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 ("the 1985 Act") contains certain tenant protections. These include, in the case of monetary breaches, a requirement that before a lease can be irritated, a landlord must serve a pre-irritancy warning notice on the tenant allowing at least 14 days to pay the arrears. If the tenant fails to pay, the landlord can then serve a second notice (an irritancy notice) which will normally terminate the lease with immediate effect. 

However, the 1985 Act also contains provisions stating that there is an irrebuttable presumption that a pre-irritancy notice that was properly addressed, pre-paid and sent by recorded delivery is deemed to have been served on the day it would have normally been received in the ordinary course of post.

Service at common law

At common law, however, delivery (i.e. actual receipt) of a contractual notice is required for service to be effective. This is subject to a rebuttable presumption (an assumption made by a court that is taken to be true unless someone proves otherwise) in favour of receipt. This presumption can be rebutted by evidence that the notice had not in fact been received.

Service under the lease/ contract

The rebuttable presumption at common law can be displaced by agreement of the parties by including clear wording in the relevant contractual provisions.

Modern commercial leases often contain a clause which says that as long as it is sent to a particular address - normally the registered UK address for a company or LLP, or the last known address for an individual - by recorded delivery post then a notice will be sufficiently served and is deemed to be served following a certain amount of time after posting (normally two days) provided it is delivered to or left at the recipient’s address.

To date, it has generally been understood that notices served in accordance with such clauses will be treated as served at the time specified regardless of whether the notice is received earlier, later, or not at all (unless the clause includes a qualification such as "unless the contrary is proven"). The purpose of such deeming provisions has been understood to be (a) to transfer the risk of non-receipt from the sender to the recipient of the notice; and (b) to provide parties with certainty on the timing of service. 

Unfortunately, and this is something that is perhaps worthy of review in an ever-changing technological and digital world, electronic service of a formal notice by fax or e-mail is not a valid form of service under a lease which includes the standard type of wording seen in the Lujo Properties lease.

The lease in Lujo Properties provided that, in order to effect irritancy, the landlord must have first “given written notice”. The court concluded that the word “given” here should be read as meaning actual delivery/ receipt.

The lease further provided that the notice would be deemed to have been duly served three days after the date of posting if sent by recorded delivery post. Notably, this prescribed mode of service did not preclude service being effected by other means.

Outcome

The sheriff found that whilst the pre-irritancy requirements under the 1985 Act were complied with (for the purpose of the 1985 Act it didn't matter that the notice had not been received by the tenant), the terms of the lease required that the pre-irritancy notice had to be actually received by the tenant, not merely sent.

The sheriff focused on the wording in the lease that required the landlord to have "given" written notice to the tenant and held that this presupposed actual receipt by the tenant. Even though the lease contained fairly standard "sufficient service" and "deemed service" provisions it was held that these did not give rise to an irrebuttable presumption of delivery upon proof of proper posting. Proof that notice had not been received could overturn the presumption and, because the notice had not actually been received by the tenant, the sheriff found that service had not occurred under the lease. The irritancy was therefore invalid.

In addition, it was held that even if the notice had been validly served, the landlord had acted oppressively in exercising its right of irritancy. The landlord had knowledge that the notice had not actually been received by the tenant and, despite being in contact with the tenant, had not alerted the tenant to the fact that the pre-irritancy warning notice had been served.

Comments

This case highlights that the irritancy process can only be followed through if all of the relevant preliminary procedure has been properly followed. The court’s decision in Lujo Properties unfortunately only adds to the uncertainties and complexities surrounding the proper service of notices and serves as a stark reminder to both landlords and tenants that service of notices under commercial leases is an area where the most cautious approach is required.

The decision emphasises the need for careful and precise drafting and, indeed, interpretation of contractual provisions. Legal advice should be sought at the earliest opportunity any time a notice requires to be served under a lease (including, rent reviews, break options, termination or enforcing breaches).

The decision has not been appealed so we will need to wait until the pertinent legal issues are considered again in another case for more clarity. However, what is clear is that this will not be the last time contentious issues in the context of contractual notice provisions come before the courts.

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