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Getting money back when breaking a commercial lease

Moneybag with Sterling Symbol on outside

Break clauses are commonly subject to conditions. Tenants must comply fully with these conditions in order to ensure that the break clause in the lease operates effectively. Failure to do so could mean that the tenancy continues. This specifically includes the payment of all rent which falls due under a commercial lease.

Moneybag with Sterling Symbol on outsideAccidental breach of break clauses
Commonly, tenants have found themselves in breach of the condition regarding full payment of rent by paying an apportioned figure of the rent due for that quarter only up to the break date. However, only the full amount will allow the break clause to ‘bite’ where the lease does not explicitly state the amount to be expected in that final quarter.

Can we have our money back please?
In the recent case Marks and Spencer v BNP Paribas, the High Court considered whether the tenant, having paid all rent due for a final quarter, is entitled to a refund of the rent and other payments made for the period following the break date. The tenant, Marks and Spencer, served the break notice in respect of their lease and made all payments due in respect of rent, service charges and a penalty payment required to end the lease.

Following termination of the lease, Marks and Spencer requested a refund of sums paid in respect of the period following the break date. The landlords refused stating that the lease did not require the repayment.

Court requires return of monies
The Court found that it was in fact an implied term of the lease that rent paid in respect of the period following the break date would be refunded. Integral to the Court’s decision was the inclusion of the words “yearly and proportionately for any part of a year” in the lease’s rent clause, along with the fact that the rent was paid in instalments.

The Court also observed that the penalty payment payable upon service of the break notice was a sum equal to a year’s rent and so felt it unlikely that both parties had intended at the time of negotiating the lease that the landlord would have the possibility to take an additional quarter’s rent.

The lease wording is central
This ruling does not mean that every tenant will now be entitled to a refund of rent paid beyond their break date. Each case will depend on its own individual facts and, importantly, the wording of the lease document. A Court must be satisfied that any implied term will express only what the landlord and tenant would reasonably have been understood to mean.

Landlords should nevertheless expect to see some requests for rent refunds from previous tenants.

By Stephen Bottle, a member of the Commercial Property Team at Cambridge solicitors Barr Ellison.

Disclaimer: While we do all that is possible in terms of ensuring its accuracy, this blog contains general information only. Nothing in these pages constitutes legal advice. You need to consult a suitably qualified lawyer from the firm on any specific legal problem or matter.

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