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Good News for Landlords on Rent Apportionment Post Break Clause

View profile for Torion Bowles
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Torion Bowles, a Solicitor within the Commercial Litigation and Dispute Resolution team, has been examining the decision of the Court of Appeal to back landlords on the issue of rent apportionment following a tenant exercising a break clause in a commercial lease.

Under the terms of the lease in the case of Marks and Spencer Plc v. BNP Paribas Securities Services Trust Company (Jersey) Limited (and another) (2014) EWCA Civ 603, Marks and Spencer Plc (the “Tenant”) was obliged to pay their basic rent every quarter.  The lease was to end on 2 February 2018, although the Tenant had the option to break the lease on 24 January 2012 if they served a break notice.  The right to break the lease was dependent upon there being no rent arrears and the Tenant paying a break premium of £919,000.  The Tenant served the break notice in July 2011, paid the quarterly rent due in December 2011 and paid the break premium on 18 January 2012. The Tenant then requested that the rent paid for the period 25 January 2012 to 24 March 2012 be repaid to them as this period (the “broken period”) post dated the break date in the lease and they were no longer in possession.

At first instance, the High Court found that on the reading of the lease as a whole, it could reasonably be  understood that the amounts paid in advance for the broken period would be repaid.  The first reason for this decision was that if the break premium was paid prior to the quarterly rent date in December 2011, it would have created an unconditional break in the lease and the rent would only have been apportioned for the period of December 2011 through to 24 January 2012. Secondly, the sizeable break premium (a year’s rent) could reasonably be considered to be adequate compensation for the landlord when the lease was terminated before the end of the full contractual term.

The Court of Appeal overturned the decision of the High Court, deciding that the parties had intended that the payment of rent for the broken period was not to be reimbursed.  The Court of Appeal did not imply a term into the lease to allow for the apportionment of rent for the broken period.  No general rule was established allowing a tenant to be repaid rent for the broken period or that a break premium necessarily reflected full and adequate compensation for breaking the lease.

The High Court had given tenants hope that they would benefit from rent apportionment from the break date.  However, the Court of Appeal has now provided certainty on this point and has come down decisively in favour of the Landlords.  Torion advises that, in light of the ruling, tenants would be best advised to pay their quarterly rent on time and not expect any rent apportionment for the broken period.

As to whether rent apportionments will be applicable will very much depend upon the wording of the lease.  Solicitors should continue to take care when negotiating break clauses as the break date in a lease may have unexpected and expensive ramifications if the break date falls shortly after the quarterly rent date. Tenants solicitors will want to ensure that there is provision for apportionment if the break date falls within a rental period.

We provide a full commercial lease drafting and negotiating service as well as specialist advice on property litigation matters.  For further information, please contact our Commercial Litigation and Dispute Resolution team on 02380 717717 or visit their section of the website here.

ENDS

This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.  All content was correct at the time of publishing and we cannot be held responsible for any changes that may invalidate this article.