What Happens When A Tenant Terminates The Lease Mid Quarter?

Many commercial leases often have a term in the lease allowing a tenant the option to terminate the lease early. This is very useful for a tenant who is trading poorly in these economically difficult times as it enables him to cut his liabilities such as payment of rent early rather than being liable for the remainder of the term

Under leases generally rent is paid in advance often quarterly so what happens if the date the tenant terminates the tem does not fall on the  rent date? Is the tenant entitled to get back from the landlord the full amount of the rent paid for that quarter? Until recently the courts have been robust and said no.

The leading case being Quirkco Investments Ltd v Aspray Transport Ltd [2011] in which his Honour Judge Keyser Q.C. said: "The Landlord's entitlement to recover as rent the full amount due in advance, notwithstanding the subsequent termination of the lease before the expiry of the term is sufficiently explained by the fact that the contractual obligation to pay the rent had accrued before termination and that the law of unjust enrichment does not operate to circumvent the scheme of obligations and entitlements contained in a valid contract.”

However  recently there is a decision which has gone the other way on the exercise of a tenant's break right that can be regarded as tenant friendly. In the High Court case of Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd,  Mr Justice Morgan has agreed with the tenant that there should be implied into the tenant's lease an obligation upon the landlord to reimburse to the tenant overpayments of rent, insurance rent and service charge relating to the period between the break clause termination date and the end of the current payment period.

The outcome in this case however fortunate for tenants is not good from that of a neutral perspective as it leads to uncertainty in the law. Will similar terms be implied into other leases?

My view is that tenants should not regard this case as one that takes away the need to provide expressly for the repayment of overpaid rents. One does not want to have to rely on the discretion of a court as to whether the courts may or may not imply such a term.

In my view tenants would be taking a risk in relying on the decision, and would be well-advised to seek an express agreement with the landlord that only an apportioned amount is due or otherwise risk the court finding against them.