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Rent payable in advance

View profile for Paul McAndrews
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Most commercial leases contain a requirement for the tenant to pay the annual rent by equal quarterly payments in advance. The Quarter Days being 25th March (Lady Day), 24th June (Midsummer’s Day), 29th September (Michaelmas Day) and 25th December (no prizes).

During the term of the lease the payments fall due on the quarter day itself and the entire sum due, a full quarter’s rent, must be paid on or by that date. But if, for some reason, the lease comes to an end during the quarter, say where a break clause takes effect, or where the lease is forfeited, the question arises whether the rent for that quarter can be apportioned to the break date or forfeiture date so that less than a full quarter’s rent is payable.

Since 1900, it has been settled law that the Apportionment Act 1870 only applies where rent is payable in arrear. If rent accrues due on a daily basis and is collected after it falls due, it will be payable only for the period of occupation enjoyed by the tenant. It will be apportioned to that period. But the Court of Appeal in Ellis v Rowbotham [1900] stated that no apportionment was to be made where the lease required the rent to be paid in advance. The Act of 1870 did not apply to rent payable in advance, only to rent payable in arrear. That remains the law.

The Court of Appeal has recently re-affirmed this. In Marks & Spencer Plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2014] it refused to imply a term into the lease that the rent payable quarterly in advance would be apportioned to the break date, 24th January 2012, where the tenant had served a break notice to that effect and the break clause in the lease required all rent to be paid up to the break date. As a result, the full quarter’s rent due in advance on 25th December had to be paid even if the tenant had to give up possession a month later and would not enjoy beneficial occupation for the remainder of the quarter to 24th March.

Nevertheless, some inroads have been made. In amendments made in 2003 to the Landlord and Tenant Act 1954, where a business tenant serves notice on the landlord (under s 27) that he does not wish to renew his lease, the rent is apportioned to the period of the notice (if it expires after the term date of the lease) even where it terminates the tenancy mid-quarter and even if the lease requires a quarterly payment in advance.

Again, where the tenant, being a company, is in administration and the administrator retains possession of the property for beneficial occupation, rent will accrue due on a daily basis and become payable from the appointment of the administrator for so long as he retains the property (whatever the lease might say about it being payable quarterly in advance). The Court of Appeal decided so, on equitable principles, in Re Games Station Ltd [2014] and so put a stop to (or at least rendered otiose) the practice of appointing administrators on the day after the quarterly rent became due so as to avoid liability for payment and enjoy occupation for the rest of the quarter on a rent free basis.

In the Marks & Spencer/ Paribas case, the judge at first instance, Mr Justice Morgan, was prepared to imply a term that, on a true construction of the lease, the parties had intended apportionment of the rent to the break date, 24th January 2012 and that the tenant, having paid the full amount in advance, was entitled to a rebate for the broken period. The Court of Appeal overruled this. Had the parties intended such a result they would have expressly stated it in the lease. But the Supreme Court has granted the tenant permission to appeal and has made it known that it wishes to be addressed on the case of Ellis v Rowbotham. If the intention is to review the law it will be interesting to see whether the Supreme Court takes the opportunity to revise it.

In the meantime, tenants who serve break notices to end the lease mid-quarter must continue to pay a full quarter’s rent in advance on the quarter day immediately preceding the break date if the lease requires payment in advance. Failure to do so will result in the break notice being ineffective if the break clause makes it a condition that all rent must be paid up to date.

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