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No implied term that landlords repay rent following exercise of break clause


LEGAL UPDATE: Commercial Property 

A tenant required to pay quarterly rent in advance before exercising a break clause had no implied right to a repayment of the part of the rent relating to the period after the lease ended, the Court of Appeal has ruled.

 

A tenant leased part of a large office building. The lease gave the tenant a right to break the lease provided (1) its rent was not in arrears at the break date, and (2) it made a payment equal to one year’s rent before the break date.

 

The tenant purported to exercise the break clause to end the lease during the December 2011 quarter. The landlord invoiced the tenant for pro rata rent (and other sums) calculated up to the intended break date. However, the tenant paid a full quarter’s rent before exercising the break -

because tenants exercising a break clause ending the tenancy during a rental quarter should pay the full quarter’s rent or the break is not effective, according to court rulings. It also paid the sum equal to one year’s rent required under the lease. The break was effective and the tenancy came to an end on the intended date.

 

The tenant then wrote to the landlord requesting repayment of that part of the quarterly rent relating to the period after the tenancy had come to an end. The landlord refused, relying on previous court decisions that landlords only had to repay rent to a tenant in these circumstances if the lease expressly said they should. In this case it did not.

 

The High Court ruled there was an implied term that the landlord should repay the part of the rent relating to the period after the lease ended.

 

The Court of Appeal has now overturned this ruling. It found that it would have been obvious when the parties entered into the lease that the tenant might have had to pay a whole quarter’s rent before exercising the break clause. They could therefore have made express provision in the lease for repayment of that part of the rent relating to the period after the lease had ended. However, they had chosen not to. It was not therefore possible to imply a term that part of the rent be repaid.

 

Recommendation

Tenants should ensure their leases give them an express right to reclaim rents paid in advance for periods after the lease ends. They should take specialist advice from experienced commercial property solicitors in the negotiation of their lease terms.

 

Case ref: Marks and Spencer PLC v BNP Paribas Securities Services Trust Company (Jersey) Limited & Anr [2014] EWCA Civ 603.

For any advice regarding Commercial Property issues, please contact our Commercial Property team on 01905 723561.

 

Added: 23 Jan 2014 14:19


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