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Is the Tide Beginning to Turn in Favour of Tenants in Relation to Breaks in Leases?

View profile for Craig Walker
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For the first time the High Court has in the recent decision of Morgan J in Marks & Spencer Plc – v – BNP Paribas Securities Services Trust Co. (Jersey) Limited [2013] EWHC 1279 held that where a full quarter’s rent had to be paid in order to comply with a lease break, there was an implied term entitling the tenant to repayment from the landlord of the proportioned overpayment for the part of the quarter falling due after the break date. 

Most break clauses provide that as a pre-condition of exercising the break all rent needs to be paid in full, which means that in order for a break to be effective a tenant has to pay the full quarter’s rent without apportionment even if the break date falls mid-quarter.  However, until this decision it was generally considered that a tenant was not entitled to a reimbursement of any sums “overpaid” referable to any period after the break date.

In this case the court held that although there was no express provision in the lease entitling the tenant to recover any overpayment, there was an implied term to that effect.   This was essentially on the basis that a reasonable person reading the lease would expect that where a break took effect, rent would be payable for the period leading up to the break date but not for any period beyond that.  The break was only effective if various conditions had been met including that there were no arrears of basic rent.  Another of the conditions was a payment on or before the break date of an amount equivalent to one year’s basic rent.  That indicated that the parties had already determined how the landlord would be compensated for the tenant leaving before the end of the contractual term and in the opinion of the court, made it unlikely that there was an intention that the landlord would also be able to retain the full quarter’s rent.

If the only pre-condition for exercising the break is that rent needs to be paid up to the break date, then the case suggests that only an apportioned payment may need to be paid.  However, this is rare and therefore the decision does not change the general position that in most cases the full quarter’s rent will still need to be paid in order for a break to be effective.  Nonetheless, although the case was decided on its own facts, the decision is likely to give tenants exercising a break a much stronger case for seeking repayment of “overpaid” sums.

The case is currently subject to appeal and it is to be hoped that the Court of Appeal will give further clarity on the issue.  However, as it currently stands, it does seem to represent a readjustment of the scales in favour of a tenant following a number of recent landlord favourable decisions concerning the operation of break clauses which have been discussed in previous editions of GD Online.

If you require any further information about the issues raised in this article please contact the author or call  0207 404 0606  and ask to speak to your usual Goodman Derrick contact.  This guide is for general information and interest only and should not be relied upon as providing specific legal advice.