Post M&S, Ronald Goldberg considers another area of the law in which apportionment may be relevant, and offers a solution for tenants who might otherwise miss out
In the aftermath of the decision of the Supreme Court in Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd and another [2015] UKSC 72; [2015] PLSCS 341, which reaffirmed the rule that rent paid in advance is not apportionable either at common law or under the Apportionment Act 1870, it may be opportune to look at a related provision that commonly occurs in leases of commercial property: the proviso for cesser of rent. This applies when the landlord effects insurance of the property, including cover for loss of rent, and is designed to relieve the tenant, either wholly or partly, from the obligation for payment of rent for the period during which the tenant cannot enjoy the full benefit of occupation of the premises by reason of the occurrence of an insured risk.
How cesser of rent works
The typical proviso for cesser of rent reads as follows:
In the event of the demised premises at any time during the term being damaged or destroyed by any of the insured risks so as to render the demised premises unfit for occupation or use and the policy of insurance effected by the landlord not having been vitiated or payment of the policy moneys refused in whole or in part in consequence of any act, omission, neglect, or default of the tenant then the yearly rent or a fair proportion of it according to the nature and extent of the damage sustained shall be suspended until the demised premises shall again be rendered fit for occupation and use or until the expiration of two years from the date of such damage or destruction, whichever period shall be the shorter.
The use of the word “suspended” strongly suggests that the draftsman envisages a situation in which the yearly rent is payable in arrear. However, despite some rumblings during the recent recession, and some concessions in favour of payment monthly in advance, the almost universal current practice is for commercial rents to be payable quarterly in advance.
Suppose that the insured premises are destroyed on a date within a few weeks after a rent payment date (typically a quarter day), say, 25 January. The tenant will have paid the full quarter’s rent due on the previous 25 December and, as affirmed by the Supreme Court in Marks & Spencer, will not be entitled to a refund of any part of it, even though the premises cannot be beneficially enjoyed for a substantial part of the quarter.
Does this matter?
It may be pointed out that the landlord will not have lost any rent until 25 March; therefore the landlord’s claim against the insurers (assuming that the landlord has effected cover for a maximum of two years) will run from 25 March, and the tenant will recover the “lost” rent at the end of the two years. However, it is far from clear from the wording of the proviso that the tenant would be entitled to recover the “lost” rent at the end of the two-year period; the relevant period of abatement is defined as running from the date of destruction, not from the next following rent payment date. Moreover, if the premises are rendered fit for occupation and use prior to the expiration of the period of two years, the tenant ceases from that time to be entitled to withhold rent. Even if this is too narrow a construction of the proviso, it is undoubtedly true that, even in this era of low interest rates, money payable now is worth more than the same nominal amount of money payable in two years’ time.
The way forward
Tenants should seek to add the following words to the end of the proviso set out above:
And the tenant shall be entitled to be reimbursed by the landlord the portion of the yearly rent paid in advance by the tenant for the period commencing on the date on which such damage or destruction shall occur and ending on the last day of the then current quarter.
A number of other thorny issues may arise out of the proviso for cesser. Just to take a couple of examples: first, a recent underground fire in the vicinity of Holborn in London demonstrated that businesses might have to be shut down as the result of an external event even in the absence of any damage to the insured premises. A slightly more common version of this scenario is damage to another part of the building containing the demised premises rendering the demised premises inaccessible. The tenant may seek to protect himself by relieving himself from paying rent so long as the demised premises are inaccessible.
Secondly, readers will have noted that the proviso is excluded from operation if the insurance policy is vitiated by the default of the tenant. In principle, it is difficult to see how a policy of insurance (a contract between the insurers and the landlord) may be vitiated by any default on the part of the tenant (a stranger to the contract) unless the tenant is a joint-insured, which is unlikely, and the default goes beyond mere negligence. However, tenants should guard against the extension of the concept of tenant’s default (sometimes buried in an interpretation clause) to cover the acts of persons at the premises with the consent of the tenant. In the case of shop premises, that would extend to customers of the business.
Before agreeing revised wording of the nature suggested, the landlord would be well advised to consult his insurers.
Ronald Goldberg is a retired solicitor and lecturer
