Commercial lease break clauses and advance payments considered by the court - our commercial property lawyers explain

Most commercial leases state that the annual rent is payable on the usual quarter days, being 25th March, 24th June, 29th September and 25th December. Some commercial leases include a break clause, allowing the tenant to bring the lease to an end early, often with a proviso that all rent must be paid up to this date. In a recent case involving Marks and Spencer (M&S), the question arose as to whether rent should be apportioned when a break clause is implemented part-way through a quarter.

M&S held a lease of a property in Paddington and under the lease the rent was to be paid “yearly and proportionately for any part of a year by equal quarterly instalments in advance”. The lease also included a break clause which allowed M&S to give 6 months’ written notice to end the lease on 24 January 2012. The break clause was also conditional on there being no arrears of rent on the break date and on payment of a substantial premium. M&S paid the rent due on 24 December 2011, but attempted to claim a refund of the rent between 24 January 2012 and the next quarter date.

M&S argued that it was not the reasonable expectations of the parties when the lease was entered into that the landlord would retain the windfall in rent between the break date and the next quarter date, especially given that they had paid a large premium to break the lease. M&S argued that a term should be implied into the lease for the apportionment and refund of the rent, should the break be exercised.

The Supreme Court found in favour of the landlord and held that it could not imply a term into the lease to permit M&S to recover the windfall. The court held that it could only imply a term into a contract if it was “necessary in the business sense to give efficacy to the contract”. The court also noted that the parties had entered into a full and professionally drafted lease and that an intention to apportion the rent payable in advance should have been expressly stated in the lease.

If tenants wish to ensure that any rent paid in advance is apportioned and refunded upon exercising a break clause, they should make this an express provision of the lease in order to be adequately protected.

If you would like to discuss this article in further detail, please contact our Business Services Solicitors who would be happy to help.