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Break Clauses and reimbursement of rent paid in advance

16 March 2018 • Danielle Leeming

Break Clauses often contain conditions which must be complied with to ensure that a Break Notice is valid. One such condition often imposed by landlord’s solicitors is the obligation for rents, to be paid on the exercise of the Break Notice and on the date on which the lease comes to an end early (the Break Date).

This creates a problem where tenants are obliged to pay the rent in advance by quarterly payments as the tenant would be obliged to pay a full quarter’s rent regardless of when the Break Date fell within that quarter period.

So where does this leave the overpayment of any Rent?

Where the rent is paid in arrears, section 2 of the Apportionment Act 1870 provides for the rent to be apportioned. However no such provision exists for rent which is paid in advance. Previously, it was accepted that a tenant would be entitled to a reimbursement of any overpayment of rents which was paid in advance only where the lease contained an express provision regarding reimbursement.

What if there is no express provision and rent is paid in advance?

The Supreme Court held in the case of Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd and another [2015] UKSC 72 that it was not appropriate to imply a term that entitled a tenant to a refund of the rent and other payments that it had paid in advance in the absence of an express term.

What impact does this have?

When negotiating break clauses, it is important for any tenant to insist on an express clause within the lease which permits the reimbursement of rent and other sums due under the lease to be paid, after the expiry of the Break Date.

The implications of such a clause can be wide reaching particularly where the rents due under the lease are significant.

Break clauses – The pitfalls

Break clauses are a wonderful thing enabling a tenant or indeed a Landlord to bring the lease at an end at any earlier date. However, there are set ways of serving a break notice which must be complied with the avoid disputes as to the validity of a break notice.

The key aspects to consider when serving a break notice:

  1. Is there a set method of service;
  2. What address should the notice be sent to;
  3. Is there a set form that should be used?
  4. How much notice do I have to give?
  5. Are there any conditions placed on the party wishing to exercise the break clause?

If you are in the process of securing a new lease with a break clause or are in the process of exercising a break clause and want assistance on serving a break notice, please contact us on 0161 214 6180 and ask to speak to a member of our Commercial Real Estate Team.

Money invested now can avoid unnecessary court battles disputing the validity of break notices in the future.

 


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