A Supreme Court decision means that tenants paying a full
quarter's rent in advance to ensure that they validly serve a
break notice will not be entitled to a refund for the period after
the break in relation to which they are not in occupation - unless,
of course, the lease provides for it.
Having served notice on the landlord pursuant to a break clause
to determine the lease on 24 January 2012, the tenant paid the rent
due for the full December 2011 to March 2012 quarter. About a week
prior to the break date, the tenant paid an additional specified
sum required as a condition of the break. The break conditions
having been satisfied, the lease term ended on 24 January 2012. The
tenant then sought repayment of the monies paid in advance, insofar
as these related to the period after the break date.
Following conflicting decisions in the High Court and Court of
Appeal, the Supreme Court ultimately decided in favour of the
Unwelcome news for tenants
The Supreme Court held that a term requiring a landlord to repay
rent paid in advance, in respect of a period beyond the date of
termination following the exercise of a break clause, would not be
implied into the lease in question.
In terms of the law relating to implied terms, the court held
The test for an implication of a term
remains whether or not it is necessary to give business efficacy to
A term will only be implied if it
satisfied the test of business necessity or it is so obvious that
it goes without saying;
The phrase "necessary" in
this context means whether or not the contract would lack
commercial or practical coherence without the implied term;
A term will not be implied into a
contract where it "lies uneasily" with the express terms
of the contract;
The law on apportionment was
confirmed, such that rent payable in advance is not apportionable
under the Apportionment Act 1870.
The Supreme Court decision preserves and restates fundamental
principles of property law in relation to break clauses in
commercial leases as well as clarifying the legal position
regarding implied terms in contracts.
This clear statement of the law and the certainty it brings will
be welcomed by the landlord community, as it will prevent tenant
challenge to the many breaks that have been exercised over past few
The case has also highlighted the need for clear and carefully
worded contracts. The test for the introduction of an implied term
into a contract is not easy to fulfil. Unless a term is so obvious
that it goes without saying, it is best to include it within the
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