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Repayment of rent

Break clause operation

Reimbursement of rent payable in advance on exercise of break right - no implied term

Marks and Spencer plc v BNP Paribas
[2015] UKSC 72

Summary

A term would not be implied in a lease permitting the tenant to recover rent paid for the period after the break date. A term will only be implied into a contract (in this case a lease) if it satisfies the test of business necessity or is so obvious that it goes without saying. Save in a very clearly drafted lease, rent paid in advance of a break date will not be apportioned.

Facts

Marks and Spencer (T) appealed against the Court of Appeal decision that it was not entitled to reimbursement of rent paid in advance of a break date where the break date fell between quarter days.

Under a lease (in fact four identical sub-leases, but treated for the purposes of the judgment as one lease), T had the right to break it on 24 January 2012. The break right was conditional on T giving the landlord (L) six months’ advance notice, and on there being no arrears of rent and on payment by T of a substantial premium by the break date.

T complied with the conditions for exercising the break clause after it had paid the full quarter’s rent due on 25 December 2011.

The lease reserved the rent annually, payable quarterly in advance and “proportionately for any part of a year”. The lease did not contain a clause allowing T to apportion rent in advance nor to claim back from L rent paid by T for the period after the break date.

Issues
  • Whether the provisions of the lease requiring the payment of rent in advance allowed for reimbursement by way of an apportionment of the rent paid in December for the whole quarter.
  • If not, whether a term would be implied into the lease to allow for such reimbursement.
Decision

On the first issue, the Supreme Court confirmed that, at common law, rent is not apportionable in time. Although s2 of the Apportionment Act 1870 apportions rent (and other periodical payments) on a daily basis, the case of Ellis v Rowbotham [1900] 1 QB 740 correctly decided that the Act did not apply to rent payable in advance.

Given this clear, general understanding that neither the common law nor statute apportion rent payable in advance on a time basis, it would be wrong, save in a very clear case, to attribute to a landlord and a tenant, particularly where they have entered into a full and professionally drafted lease, an intention that the tenant should receive back an apportioned part of rent payable and paid in advance.

On the second issue, the Supreme Court upheld the Court of Appeal’s decision on the implication of terms into a document between “substantial and experienced parties … negotiated and drafted by expert solicitors”, where the document would have dealt with reimbursement if this is what had been agreed.

Lord Neuberger, giving the leading judgment, with which Lord Hodge and Lord Sumption agreed (Lord Clarke and Lord Carnwath giving separate and largely concurring judgments) set out the test for the implication of terms, which in outline can be summarisied as follows:
  • There is a clear, consistent and principled approach to the law of implied terms which requires that a term will only be implied where it is strictly necessary for business efficacy or where it is so obvious it “goes without saying”. Necessity is not absolute necessity but rather whether, without the term, the contract would lack commercial or practical coherence.
  • It is not enough that the parties would have agreed to it had it been suggested to them. That is a necessary but insufficient ground for implying a term.
  • There has been no dilution of the requirements that have to be satisfied before a term will be implied. Lord Hoffman’s judgment in Attorney General of Belize v Belize Telecom Ltd [2009] WLR 1988, was an “inspired discussion rather than authoritative guidance on the law of implied terms”.
The Supreme Court added (Lord Carnwath dissenting on this point) that the process of implication is distinct from the process of construction and that it is only after the question of construction has been considered that the question of implication can arise. However, the settled law as at the date of execution will continue to inform the reasonable man’s view of the contract.

Lord Neuberger confirmed (obiter) that if it was clear on the quarter day preceding the termination (break) date that the lease would end on the termination date (because there were no other pre-conditions that needed to be satisfied), then the tenant would only have had to pay the appropriate proportion of the rent until the end of the termination date.

Comment

Apportionment of rent is (the obiter comment above aside) only possible on very clear wording within the lease where the tenant operates a conditional break clause. The principles guiding the implication of terms have arguably been tightened. One wonders whether or not the Supreme Court could not have come to a more common sense conclusion had it wanted to? Perhaps the purity of the principles has overshadowed the commercial and common sense realities of the real world?

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