Break dates, rental payments and apportionment

Cutbacks iStock 000013353612XSmall 146x219A recent Court of Appeal decision on break dates and rental payments marks a return to express wording for apportionment, says Naomi Chesterman.

On 14 May 2014 the Court of Appeal overturned the High Court's decision in the Marks & Spencer (M&S) case. The case specifically deals with the payment of quarterly rent where, a break is conditional on payment of rent and that the break date falls within a quarter.

The Court of Appeal's decision will be a relief to landlords as it reinstates the position that there is no obligation to repay the balance of the quarter's rent (for the period following the break date). It will, however, be a disappointment to tenants.

The High Court decision - Marks & Spencer Plc v BNP Paribas Securities Services Trust Company (Jersey) Limited [2013] EWHC 1279

Pre M&S case - a tenant exercising a break could only recover sums paid in respect of the period after a break date if there is an express apportionment clause in the lease.

However, in the High Court decision in the M&S case, the court implied a term into the lease which required the landlord to reimburse the tenant.

The Court held that this demonstrated that the parties had considered how the landlord was to be compensated if the break was exercised and there was no intention on the part of the parties that the landlord would hold on to the full quarter's rent.

The Court also found that the tenant was entitled to a refund of the overpayment of car parking and insurance premiums.

The Court of Appeal decision - Marks & Spencer Plc v BNP Paribas Securities Services Trust Company (Jersey) Limited [2014] EWCA Civ 603

The appeal upheld, overturning the High Court decision and reinstating the previous position that a refund of an overpayment on a break is only payable where the lease contains express apportionment wording.

The Court of Appeal refused to imply a term for reimbursement. The reasoning given by Lady Justice Arden in her judgment being, "the correct inference to draw is that the parties proceeded on the basis that the loss from a payment of rent for the broken period should lie where it fell." Otherwise, the Court held, the parties would have made provision for this in the lease as it would have been obvious to them that this eventuality could arise.

Although the Court of Appeal's decision may not be welcomed by tenants, it realigns this case with mainstream judicial thinking on apportionment and clarifies the position in relation to implied terms for reimbursement.

Naomi Chesterman is a senior associate at Veale Wasbrough Vizards. She can be contacted on 0117 314 5481.