GKN Aerospace Services Ltd v Duncan Investments Ltd

Contractual interpretation is a unitary and iterative exercise. The court must assess the language in the context of the agreement, its drafting quality, factual background and the commercial consequences of competing constructions. Clear language remains important, but a few words cannot be isolated from the clause and its contractual setting.

Where a break clause is poorly drafted, the court should consider whether its wording identifies a single opportunity to break a lease or imposes an exceptionally strict single-day service requirement. A construction creating substantial risk and uncertainty for the tenant, without a genuine commercial purpose, should not be adopted unless the parties used sufficiently specific language.

The tenant held a flat under a lease containing a rolling break option exercisable on at least two months’ written notice. An Addendum extended the tenancy for a further two years and replaced the original break provision with wording stating that the tenant could serve notice at one point, three months before the anniversary of the first year.

The tenant served notice on 1 June 2018. The County Court at Central London, by an order dated 5 December 2019, held that notice had to be served on 24 July 2018 and that the break option had therefore not been validly exercised. The tenant appealed, arguing that the clause required three months’ notice expiring on the fixed break date, rather than service on one particular day.

1. Appeal allowed. The Addendum did not require the tenant to serve the break notice within a twenty-four-hour period.
2. Contractual interpretation required the unitary and iterative approach described in Wood v Capita Insurance Services [2017] AC 1173. The words of clause 2 had to be considered with the incorporated lease terms, the poor quality of drafting, the change from a rolling break to a one-off break, and the commercial consequences of the rival interpretations.
3. The clause contained material ambiguities. It was unclear what “only” qualified, which date constituted the anniversary of the first year, and whether the wording concerned service of notice or the date on which the tenancy was to end. The phrase “serve notice at one point” could not be treated as determinative when isolated from the clause and its context.
4. The Addendum was intended to create a one-off break option requiring three months’ notice expiring on the anniversary date. The absence of the words “not less than” did not necessarily impose a requirement for precisely three months’ notice or service on one day.
5. A single-day service requirement would create avoidable risk and uncertainty, particularly because the incorporated service provisions deemed postal and hand-delivered notices served on different dates. It served no genuine commercial purpose for both parties and would ordinarily require much more specific drafting.
6. The County Court judge therefore erred in concluding that clause 2 had only one possible interpretation. The tenant’s notice was effective. The judge also made a modest reduction to the trial costs, reducing solicitors’ costs by £945 and counsel’s fees by £500.

• High Court (Chancery Division): The appeal from the County Court at Central London was allowed. The court held that the Addendum did not require service of the break notice on a single specified day.
• County Court at Central London: HHJ Saunders held, by order dated 5 December 2019, that the break notice had to be served on 24 July 2018 and that the tenant’s attempted exercise of the break option had failed.