Lease terminations: Why it's important to understand your contractual arrangements

When entering into a lease, it’s important that contractual arrangements are understood to avoid mistakes and disruption further down the line. Our real estate team explores a recent case that highlights why this is and what can go wrong.

In December 2021, British Telecommunications Plc (“the landlord”) and On Tower UK (“the tenant”) entered into a lease concerning part of a rooftop in Harrow. The lease included:

• options to renew the lease until November 2030
• a break clause exercisable by the landlord.

Due to the nature of the lease and its provisions, it fell within the scope of the Electronic Communications Code (“the code”), meaning that statutory continuation would apply unless terminated in accordance with the code’s notice requirements.

In 2023, the landlord attempted to exercise the break clause. However, the notice was served under the wrong contractual provision of the lease, rendering it invalid.

Subsequently, in 2024, the landlord served a paragraph 31 notice under the code, seeking to terminate the statutory continuation of the lease. The tenant rejected both notices and applied to the Upper Tribunal (UT), arguing that a valid contractual notice was a prerequisite for a valid statutory termination under the code.

The UT held that the paragraph 31 notice under the code could be validly served without the need for a prior valid contractual notice.

However, the Court of Appeal overturned the UT’s decision, ruling that in order to terminate the statutory agreement, the contractual notice must first be validly served. The court emphasised that the statutory continuation under the code is rooted in the original contractual agreement and, therefore, proper termination of the contract is a necessary condition for ending the statutory rights.

What does this mean?

This case demonstrates the importance of contractual arrangements; parties cannot use statute to bypass contractual conditions.

In order to avoid having to resort to court proceedings, parties should ensure that contractual lease obligations are validly performed before relying on statute.

If you require any assistance with drafting or reviewing a lease which is subject to a statutory code, please get in touch with our expert team.

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