Topics: Landlord and tenant – Rent – Break clause
Alternative Citations:  EWCA Civ 603
Hearing Date 14 May 2014
Court Court of Appeal, Civil Division
Judge: Lady Justice Arden, Lord Justice Jackson and Lord Justice Fulford
Representation: Guy Fetherstonhaugh QC (instructed by King & Wood Malleson LLP) for the claimant. Nicholas Dowding QC (instructed by Allen & Overy LLP) for the defendants.
Landlord and tenant – Rent. The claimant tenant exercised a break clause in its lease with the defendant landlords. The judge implied a term which enabled the tenant to get back that part of the advance payment of rent which related to a period after the break date by when the lease would have been terminated. The landlords appealed. The Court of Appeal, Civil Division, in allowing the appeal, held that the correct inference to draw was that the parties had proceeded on the basis that the loss from a payment of rent for the broken period should lie where it fell.
The judgment is available at:  EWCA Civ 603
The appeal concerned a break clause in a lease, permitting the claimant tenant to terminate the lease on a date earlier than the last date of the term. The parties had negotiated a break premium, but said nothing about an apportionment of rent, which the lease required the tenant to pay in advance. At first instance, the judge held that he could imply a term which enabled the tenant to get back that part of the advance payment of rent which related to a period after the break date by when the lease would have been terminated. That decision was based on conclusions that: (i) an apportionment clause applied, if the break clause was operated, to the advance payment of rent from the last quarter day preceding the break date, provided that the break premium had also been paid, since it was then certain that the lease would terminate on the break date (the apportionment conclusion); (ii) a reasonable person would consider that such a term was to be implied because the tenant should be in the same position as a tenant who paid the break premium on the last quarter day (the same position conclusion); and (iii) the break premium amounted to a year’s rent, so the parties should be taken to have agreed that that was the full amount of compensation for the defendant landlords, if the tenant exercised its right to determine the lease under the break clause and, in those circumstances, they were unlikely to have considered that the landlords should retain the rent for the broken period as well. The landlords appealed.
It fell to be determined whether the judge had erred in implying the term.
The appeal would be allowed.
When all the circumstances were considered, the correct inference to draw was that the parties had proceeded on the basis that the loss from a payment of rent for the broken period should lie where it fell. Accordingly, no term for repayment was implied. With respect to the apportionment conclusion, the lease clauses showed that the parties could easily have added words to the effect that the landlords were to repay any rent or other charges paid for the broken period. Further, there was no precedent for implying a term for repayment of rent for the broken period and that case law formed part of the admissible background against which the lease was to be interpreted. It made it all the more likely that a reasonable person, having knowledge of the background, would conclude that, if the parties had really intended there to be an implied term for repayment, they would have made express provision for it. Accordingly, the words of the lease would not have led the parties to believe that there had been a right to recoup a payment of rent insofar as it had been attributable to the broken period. With respect to the same position conclusion, the force of the judge’s point depended on saying that the situation where a proportionate payment of rent could be made on the last quarter day and the situation where termination had, in fact, taken place on the break date because by then the tenant had paid the break premium, were on all fours. However, that was not so. Likewise, the full compensation conclusion assumed that the break premium constituted the totality of the agreed compensation. However, the fact was that the landlords could be compensated in other ways (see , -, ,  of the judgment).
A-G of Belize v Belize Telecom Ltd  2 All ER 1127 applied; York v Casey  2 EGLR 25 distinguished;Stena Line Ltd v Merchant Navy Ratings Pension Fund Trustees Ltd  All ER (D) 121 (May) considered;Mediterranean Salvage and Towage Ltd v Seamar Trading and Commerce Inc; The Reborn  1 All ER (Comm) 1 considered.
Decision of Morgan J  All ER (D) 214 (May) reversed.
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