A break for tenants? Break options and rent refunds

Sometimes it’s hard to be a tenant. A bit of tough negotiation on the commercial lease grant has secured you a break option. Midway through your lease term you look to exercise that option only to be faced with a myriad of preconditions. Your lease could contain conditions of vacant possession; payment of rents; no material breaches of covenants. There are plenty of bear traps to keep you standing by your landlord.

Recent case law certainly hasn’t helped the tenant. A recurrent issue has been break dates falling part way through a rental quarter and the question of overpayment of rent. The case of Canonical UK Ltd v TST Millbank LLC [2012] adopted a very strict approach to break payment conditions. It interpreted a condition requiring payment of rents up to the break date as requiring payment up to the next quarter day, despite the break date falling prior to it.

The court held that the condition did not vary the tenant covenant to pay the full quarter’s rent in advance. It also held that without an express provision there was no requirement for the landlord to reimburse the tenant for the overpayment of rent from the break date to the next quarter day. And so the recent High Court case of Marks & Spencer v BNP Paribas Securities Services Trust Company (Jersey) Ltd [2013] EWHC 1279 (Ch), which seemingly rowed back from that high water mark of strictly applied conditions, has been welcomed by tenants’ representatives. It too considered the issue of a tenant break part way through a rent quarter…

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