Where a break clause is conditional, the general rule is that the tenant must pay a full quarter’s rent on the rent payment day before the break date, even though its lease will end midway through a quarter. This is because rent payable in advance is not apportionable at common law, or under the Apportionment Act 1870, and the parties cannot be certain whether the lease will continue or terminate: see Ellis v Rowbotham [1900] 1 QB 740 and Re A Company [2007] BPIR 1.
It looked as if the judiciary might have softened its stance slightly when the High Court held that a tenant was entitled to recover sums pre-paid for the period following a break date, once its lease had ended, because there was an implied term to that effect in the parties’ lease. However, the Court of Appeal has overturned the decision.
The break right in Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2014] EWCA Civ 603; [2014] PLSCS 150 was conditional on there being no arrears of rent and on the payment of a further year’s rent to compensate the landlord for the loss of its income stream. The tenant complied with the conditions contained in the break clause and the lease ended on 24 January 2012.
The trial judge noted that the landlord was entitled to receive a premium on or before the break date and thought it unlikely that the parties had intended the landlord to receive anything more. In addition, he considered that the fact that the rent was payable “proportionately for any part of a year” also helped to indicate the parties’ intentions.
The Court of Appeal disagreed. An unexpressed term can be implied if, and only if, the court finds that the parties must have intended that term to form part of their contract. The starting point is that, if there is no express term, none should be implied and the court will not imply a term unless it is needed to give effect to the parties’ agreement.
The case law did not support the implication of the term that the tenant was trying to rely on and formed part of the admissible background against which the lease was to be construed. It would have been obvious to the parties, before they signed the lease, that the tenant might have to pay a full quarter’s rent on the last quarter day before the break date. The parties must have discussed what was to happen if the tenant were to exercise its break right and could easily have negotiated a provision requiring the landlord to reimburse the tenant for any sums that had been pre-paid in respect of the broken period.
In addition, the words “proportionately for any part of a year” did not apply where there was no certainty on the last quarter day that termination would occur on the break date. Consequently, it would not be appropriate to imply a term that the tenant was entitled to a refund when the break clause was exercised.
The judgment will dash the hopes of tenants who had hoped that the case would mark a turning point in the battle for apportionments when leases are broken and highlights the need for express provisions to cover the position.
Allyson Colby is a property law consultant
