Can a tenant recover rent paid in advance relating to a period after a break date?
The Supreme Court has handed down its decision in this case, refusing to order the landlord (BNP) to pay the tenant (M&S) a refund of rent M&S had paid in advance of termination of its lease of a property in London in 2012. The claimed payment was the proportion of the rent M&S had paid which related to a period after the break date. M&S had succeeded in the High Court, but that decision was reversed in the Court of Appeal, with which the Supreme Court has agreed. M&S had argued that it was an implied term of the lease that it was entitled to a refund following termination of the lease on the break date.
On the facts of the case, the court found that in the absence of an express clause permitting recovery of the sum claimed, there was no entitlement to a refund. This decision is relevant to many commercial tenants negotiating leases, or exercising break clauses where the lease does not include an express clause permitting the recovery of sums paid relating to a period after a break date.
The Supreme Court's decision will be disappointing news for many tenants exercising break clauses, but positive news for landlords hoping to retain all rent already paid by a tenant. It means that tenants negotiating a break clause in a lease should continue to seek to include express wording permitting recovery of sums which relate to the period after a break date or allowing apportionment of the rent paid on the last quarter day before the break date. Alternatively, the break date should be rolling, or on the last day of a quarter.
Tenants exercising a break clause that does not include an express clause permitting the recovery of sums relating to the period after the break date need to be aware that such sums will often not be recoverable.
However, the leading judgment in the case, given by Lord Neuberger, does offer hope for tenants. Lord Neuberger supported the view that where all other break conditions are satisfied before the last quarter's rent is payable, it may be possible for the tenant to pay an apportioned payment on the last quarter day. In the M&S case, at the last quarter day there was an as yet unfulfilled condition, in that a break penalty payment had not been paid to the landlord.
However, where payment of rent is a condition of a break right, best practice will continue to be for a tenant to pay the full quarter's rent, and argue for reimbursement from the landlord after the property has been handed back to the landlord.
Unfortunately this case has not given complete clarity on the issue of pre-break clause rent payments, and further litigation may be expected.
If you have any questions arising from this case, or relating to break clauses generally, please contact a member of Bevan Brittan's property dispute resolution team.