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Case law: No implied term that landlords repay rent following exercise of break clause

New tenants should make sure their leases expressly include the right to reclaim rent paid in advance after the lease ends, following an important ruling for the housing industry.

Legal Alert

This update was published in Legal Alert - June 2014

Legal Alert is a monthly checklist from Atom Content Marketing highlighting new and pending laws, regulations, codes of practice and rulings that could have an impact on your business.

In a recent case, the tenant, who was required to pay quarterly rent in advance before exercising a break clause, had no implied right to be repaid the part of the rent relating to the period after the lease ended.

The tenant had a right to break the lease provided (1) its rent was not in arrears at the break date, and (2) it made a payment equal to one year’s rent before the break date. It exercised the break clause during the December 2011 quarter. The landlord invoiced the tenant for pro rata rent (and other sums) calculated up to the intended break date. However, the tenant paid a full quarter’s rent before exercising the break together with a sum equal to one year’s rent required under the lease. The tenancy came to an end on the intended date.

The tenant requested repayment of that part of the quarterly rent relating to the period after the tenancy had come to an end, but the landlord refused, relying on earlier rulings that landlords only had to repay rent to a tenant in these circumstances if the lease expressly said they should. In this case it did not.

The Court of Appeal ruled in the landlord’s favour, saying it would have been obvious when the parties entered into the lease that the tenant might have had to pay a whole quarter’s rent before exercising the break clause. They could therefore have made express provision in the lease for repayment of that part of the rent relating to the period after the lease had ended. However, they had chosen not to and it was not therefore possible to imply a term that part of the rent be repaid.

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