Where a break clause is conditional, the general rule is that tenants must pay a full quarter’s rent on the rent payment day immediately before the break date, even though the break date falls mid-way through a quarter. This is because the conditions might not be fulfilled, which would mean that the lease would continue, and because rent payable in advance is not apportionable at common law, or under the Apportionment Act 1870: Ellis v Rowbotham [1900] 1 QB 740.
Arguments based on wording in leases requiring tenants to pay rent “yearly and proportionately for any part of a year” have failed to persuade the courts otherwise, on the ground that these words apply only where the end date of a lease is certain. So, in Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72, the tenant tried another tack. It argued that it was entitled to a refund because there was an implied term to that effect in its leases.
In a judgment that is deeply disappointing from the tenant’s perspective, the Supreme Court has ruled in favour of the landlord, even though it accepted that the implied term appeared to be both reasonable and equitable and that its decision would result in a windfall for the landlord. The court reminded us that the question of whether a term is to be implied must be judged at the date on which the contract was made. Furthermore, the court will not imply a term into a detailed commercial contract simply because it appears fair or because the parties would have agreed it, had it been suggested to them. The test for implying a term is based on necessity.
The tenant’s break right was conditional on there being no arrears of rent and on the payment of a premium to compensate the landlord for the loss of its income stream. The tenant had paid the premium shortly before the break date. This meant that the date on which the lease would end was uncertain right up until the very last minute. Consequently, the tenant had been liable to pay a full quarter’s rent on the previous rent payment date – and the lease did not provide for a refund.
The parties had signed a full and professionally drafted lease, negotiated against the background of a clear and consistent line of authority concerning the apportionability of rent. This made it difficult for the tenant to argue that the court could imply a term contrary to the ruling in Ellis. The Supreme Court considered that Ellis had been correctly decided and that it would be wrong to imply a term unless it was necessary to give effect to the parties’ agreement.
Furthermore, it would be peculiar to imply a term requiring the landlord to make a payment to the tenant at the same time as the tenant was due to make a payment to the landlord. The implied term would sit uneasily alongside the express term for a payment moving in the opposite direction.
The judgment is consistent with the legal position on the forfeiture of a lease – but dashes all hope of a change in the law on apportionments when commercial leases are broken, unless parliament can be persuaded to step in. Therefore, tenants would be well-advised to negotiate express provisions to cover the position.
Allyson Colby is a property law consultant
