A tenant
has finally had a lucky break in a case on break clauses.
In a judgment published
last week*, Mr Justice Morgan, sitting in the High Court, has decided that
where a break date falls in the middle of a quarter, in the absence of express
wording a term can be implied requiring the landlord to repay to the tenant
rent (and in this case insurance and service charge) paid for the period after
the break date.
In this
case the tenant, Marks & Spencer, had the right to terminate its lease on 24 January 2012. Rent
was payable quarterly and it paid the final quarter before the break in full on
25 December 2011.
In the
absence of express wording in the lease, Morgan J said it was "eminently
reasonable" to imply a term that the tenant should be reimbursed the
balance of the quarter once the lease has ended and that the implied term was
"obviously what the parties meant" even though the lease contained no
specific obligation to repay.
This was
not the outcome however in the recent cases PCE
Investors Ltd v Cancer Research [2012] and Cannonical
UK Ltd v TST Millbank LLC [2012] - neither of which made it to the
Court of Appeal because both cases were compromised (the links take you to
earlier blogposts of mine).
Morgan J
said the possibility of implying a term in this way was not considered in those
cases - so he appears to be adopting a novel approach, and siding with the
tenant (which goes against the grain of most recent break clause cases).
He also
makes some interesting comments on when it becomes necessary to pay a full
quarter's rent where the break date falls within a quarter.
The safest
course of action (and I think it still is) has always been to pay the full
quarter, unless the lease very specifically provides otherwise.
And in
this case Morgan J says it was right for the tenant to pay the quarter in full
because the break clause was conditional (it required payment of a further
fixed lump sum) - so it wasn't certain at the point of making the quarterly
payment whether the lease would actually end on the break date.
If the
break clause had been unconditional however, Morgan J states that the tenant
need only have paid an apportioned amount of rent - for the period from the 25
December 2011 to 24 January 2012.
This is
because the rent was stated in the lease to be payable "proportionately
for any part of a year".
So if the
break clause had been unconditional, Morgan J has held that the amount payable on the preceding quarter day should be treated in the same way as you would treat
the payment of the last rent instalment at the end of the term.
The lease
in question would have ended on 2 February 2018, so on 25 December 2017 the
tenant would only have been required to pay a proportionate amount of the last
quarter's rent - so why should it be any different with an unconditional break
clause operating mid-quarter?
This, as
Morgan J says, is a common sense view.
I still think the safest course of action would be to pay the whole quarter - you don't want to risk messing up operating a break clause; it can prove very expensive.
I still think the safest course of action would be to pay the whole quarter - you don't want to risk messing up operating a break clause; it can prove very expensive.
I've not yet
seen any commentary though from my more learned friends on this case.
So it will be interesting to see peoples' views, and whether there is an appeal.
So it will be interesting to see peoples' views, and whether there is an appeal.
.JPG)
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