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The Court
of Appeal ruled this week* that where a break date falls in the middle of a
quarter, in the absence of express wording a term cannot be implied requiring
the landlord to repay to the tenant rent paid for the period after the break
date when the tenant has exercised its break clause.
This
reverses the decision
of the High Court last year and is the second major case on break clauses
this year which sees the tide turning back against tenants (see Court
Applies Strict Interpretation for the other one).
Many were
surprised by the High Court's decision last year and this judgment has been
eagerly awaited.
The Court
of Appeal has reasserted the orthodox view that a term can only be implied into
a contract if it's necessary to achieve the parties’ express agreement,
construed against admissible evidence.
Most
pre-contract negotiations are likely to be inadmissible evidence.
Not all
was lost for the tenant - the Court of Appeal endorsed the view (agreed by the
parties) that the tenant was entitled to repayment of any advance
service charges it had paid which hadn't been spent by the landlord before the
break date.
What about
the comments made by Morgan J in the High Court, that the tenant could have paid an
apportioned part of the last quarter’s rent (which would avoid the need to seek
repayment later on) so long as it paid the required break premium at the same
time?
The Court
of Appeal didn't decide the point but Arden L.J. said that this would “seem to
be correct but the point was not argued before us”.
However it
would be a brave (or foolish) tenant who relied on that.
The safest
course of action - where a break date falls in the middle of a quarter - is to
pay the full quarter's rent and stick to the old view that there's no common
law right to apportion it.
Sacrificing
the balance of the quarter's rent, in most cases, will be a price worth paying
for ensuring the lease, and the rental liability, doesn't have to go the
distance of a full term.
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