Mark Sefton shines a light on an overlooked aspect of a recent Supreme Court ruling – one that could provide a windfall for landlords
The Supreme Court decision in Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd and another [2015] UKSC 72; [2015] PLSCS 341 has a lot to say about tenants’ break options, and a lot to say about the law of implied terms. What has been less widely observed, however, is that it also has something important to say about the law of forfeiture. It suggests that, if a landlord has a forfeiture claim, and if it times the claim well, then it can potentially double its money.
The traditional position
The usual way to plead a forfeiture claim has long been settled. The service of the proceedings terminates the lease. So the landlord can claim a possession order. The termination of the lease does not affect the tenant’s liability for the quarter’s rent falling due before the service of the claim. So the landlord has a claim in debt for the full quarter’s rent, if it is unpaid.
As for mesne profits – the damages payable for keeping the landlord out of possession – in Canas Property Co v KL Television Services [1970] 2 QB 433, Lord Denning MR held that they run from the next quarter day following service of the claim. So the usual prayer in a forfeiture claim is: for possession; for a money judgment for any unpaid rent which fell due before the date of service; and for mesne profits from the following rent day.
It is no surprise that the landlord in Marks & Spencer saw Canas as a bit of a problem. At the heart of the tenant’s case was the proposition that it was so obvious it went without saying that the tenant ought only to have to pay for what it receives. If the lease ends early, then the unearned part of the hire should go back to the tenant.
Canas was, on one analysis, supportive of the tenant’s proposition. It had seemed obvious to Lord Denning that it went almost without saying that mesne profits should run not from the date of service of the proceedings, but from the following rent day. But why?
It is necessarily implicit in this proposition that the tenant is allowed a credit for rent which has fallen due before the date the lease terminates, and that the credit is for the unearned part of the hire for which it is liable as a debt. The service of the proceedings terminates the lease. So from service onwards, the landlord is entitled to possession and the tenant is not.
If the tenant fails to hand the property back to the landlord straight away, why is it not also liable for mesne profits straight away? The only reason can be that the previous quarter’s rent, for which the tenant is liable in debt, continues to run as a credit in the tenant’s favour, notwithstanding the termination of the lease.
What M&S adds
Canas is primarily mentioned in Marks & Spencer for what it had to say about the Apportionment Act 1870 and Ellis v Rowbotham [1900] 174 QB 740. But Lord Neuberger was alive to the inconsistency in Canas between, on the one hand, the proposition that the tenant is not entitled to an apportionment of the rent falling due before the date of service of the proceedings and, on the other hand, the conflicting proposition that the tenant is not liable for mesne profits until the start of the following quarter.
Consistent with the decision in relation to a tenant’s break option, Lord Neuberger therefore observed (in passing and in parentheses) that the decision in Canas, about the starting date for the tenant’s liability for mesne profits, may well be wrong. What Lord Neuberger meant by this is that, since the service of the claim terminates the lease, and since the tenant can claim no apportionment of the rent which fell due before the date the lease was terminated, it ought to follow that the liability for mesne profits arises immediately. Mesne profits would therefore run from the date of service of the claim, rather than from the later date when the notional credit for the previous quarter’s rent has been exhausted.
Choose your date wisely
If this passing observation is correct, then landlords should now take great care with the date they choose to begin forfeiture proceedings, otherwise they will waste an opportunity to double their money.
If a landlord serves its forfeiture claim on the first available date after the quarter day, then for the rest of that quarter it can claim the rent from the tenant twice over. The tenant is liable to the landlord in debt for the full quarter’s rent, and it cannot claim any apportionment or credit. The tenant will also now be liable for mesne profits for the same period, normally at the same rate.
Tenants, meanwhile, will now need to take care with how they respond to forfeiture proceedings. Until now, a tenant has been able to stay in the property until the next quarter day with relative impunity, because this does not increase its liability beyond the quarter’s rent for which it is already contractually liable. From now on, though, the tenant’s liability for double the rent can only be curtailed by giving up possession in response to the proceedings, and the sooner the better.
Mark Sefton is a barrister at Falcon Chambers
