Break Clauses and Rent in Advance
The financial consequence of rent being paid in advance and then a break clause being triggered was recently considered by the Supreme Court in the case of Marks and Spencer plc v BNP Paribas Securities Services Trust Company.
The lease required the rent to be paid on the usual quarter days in advance. Accordingly, the rent was paid in full on 25 December 2011, and on 24 January 2012 the break clause was activated.
Having validly exercised the break clause, M&S then demanded repayment of the basic rent that related to the period after the break period. Their lease did not have any clause within it which entitled M&S to any such reimbursement.
The Supreme Court found that, other than in very exceptional circumstances, a reimbursement of rent in advance would require a very clear clause in the lease to entitle a tenant to a refund. These would even apply to rent paid in advance relating to the period after the exercise of a conditional break clause. In giving its judgment the Supreme Court took the opportunity to clarify the law on implied terms generally and to confirm that the Apportionment Act 1870 does not apply to rent payable in advance.
Those drafting leases with a break clause should consider an apportionment clause for rent paid in advance where tenants are permitted to exercise a break clause if they wish to allow for rent to be paid back in this way. Anyone acting for a tenant should ensure that such a clause is in their lease.
Filed under: England & Wales