Apportionment of Rent Dispute

In the case of Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd and another [2014] EWCA Civ 603 there was a break clause in a lease that permitted the tenant to terminate the lease on a date earlier than the last date of the term. The parties had negotiated a break premium, but had said nothing about an apportionment of rent, which the lease required the tenant to pay in advance.

In the Court of first instance, the Judge held that he could imply a term which enabled the tenant to get back that part of the advance payment of rent which related to a period after the break date by when the lease would have been terminated. That decision was based on conclusions that:

  1. an apportionment clause applied, if the break clause was operated, to the advance payment of rent from the last quarter day preceding the break date, provided that the break premium had also been paid, since it was then certain that the lease would terminate on the break date (the first conclusion);
  2. a reasonable person would consider that such a term was to be implied because the tenant should be in the same position as a tenant who paid the break premium on the last quarter day (the second conclusion); and
  3. the break premium amounted to a year's rent, so the parties should be taken to have agreed that that was the full amount of compensation for the defendant landlords, if the tenant exercised its right to determine the lease under the break clause and, in those circumstances, they were unlikely to have considered that the landlords should retain the rent for the broken period as well (the third conclusion).

The landlords appealed and it fell to be determined whether the judge had erred in implying the term.

The appeal would be allowed.

When all the circumstances were considered, the correct inference to draw was that the parties had proceeded on the basis that the loss from a payment of rent for the broken period should lie where it fell. Accordingly, no term for repayment was implied.

  • With respect to the first conclusion, the lease clauses showed that the parties could easily have added words to the effect that the landlords were to repay any rent or other charges paid for the broken period. There was also no case law precedent for implying a term for repayment of rent for the broken period It made it all the more likely that a reasonable person, having knowledge of the background, would conclude that, if the parties had really intended there to be an implied term for repayment, they would have made express provision for it.
  • With respect to the second conclusion, the force of the judge's point depended on saying that the situation where a proportionate payment of rent could be made on the last quarter day and the situation where termination had, in fact, taken place on the break date because by then the tenant had paid the break premium, were on all fours. However, that was not so.
  • Likewise, the third conclusion assumed that the break premium constituted the totality of the agreed compensation. However, the fact was that the landlords could be compensated in other ways

 

Oliver Kew

Published on 30/05/2014

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