Archive for the ‘rent’ Category

Break clause: can the tenant recover ‘excess’ rent paid in advance?

June 10, 2013

In Marks & Spencer plc v Bnp Paribas Securities Services Trust Company (Jersey) Ltd ([2013] EWHC 1279 (Ch)) (since overturned by the Court of Appeal) a lease contained a break clause. If exercised, the lease would determine in between the quarter days on which rent payments were to be made. The tenants exercised the break clause. On the next quarter day, they paid a full quarter’s rent. After the lease had come to an end, the tenants argued that they were entitled to a repayment of that portion of the rent attributable to the period after the end of the lease.

The lease provided that rent was payable ‘yearly and proportionately for any part of a year by equal quarterly payments in advance on the Quarter Days.’

The tenants rested their argument for recovery on (i) the express words just mentioned, (ii) the presence of an implied term that such repayment would be made, and (iii) restitution. There was no express right of recovery ([29]). They succeeded on the second ground; there was an implied term to this effect ([35] – [37]). The court would not have ordered repayment under the heading of restitution since there had been no total failure of consideration ([42]).

The other ‘excess’ payments made (car park licence fee [47] and insurance charge [49] – [52]) were also recoverable.

The service charge clause provided for an advance payment and (once the accounts for the year were settled) a balancing charge or credit. It was held that the tenants were entitled to invoke the balancing mechanism in the service charge clause even though this was an exercise which would take place after the end of the lease. As a credit against future service charge payments was of no use to them, they were entitled to a refund of the ‘credit’. In fact, the landlords had conceded this point ([56]).

Returning to the recoverability of the excess basic rent payment attributable to the period after the lease came to an end, the court held that:

1. if there had been no break clause and the term had expired between quarters then the tenant would, as a matter of the express terms of the lease (‘proportionately for any part of a year’) have been obliged only to pay rent up to the end of the term . The same result could be reached based on a ‘common sense view’ even without these words ([27]); and

2. the same would be true if the lease had been brought to an end by the exercise of a break clause and it was certain from the outset that the notice was effective to determine the lease ([28]).

The effectiveness of the break clause in this case, however, was conditional so that prima facie rent had to be paid for the full quarter ([28]). There was no express right of recovery of the excess and the words ‘proportionately for any part of a year’ did not confer any such right ([29]).

There was, however, an implied term to the effect that a repayment of the excess rental payment would be made. The court referred to the amounts that would have been payable had it been certain that the lease would end when it did, in fact, end. This meant that a reasonable person would think that no rent was payable for the period after the lease had ended. This conclusion was reinforced by the fact that the tenants had to pay a capital sum if they exercised the break right and it seems unlikely that they were to get both this and rent for the period after the lease ended ([35]).

As a cross-check, the court considered whether the implication of the term was reasonable ([36]) and necessary to give business efficacy to the agreement ([37]). These cross-checks reinforced the conclusion that a term as to repayment was to be implied.

There would be no such implied term if the lease had come to an end as a result of forfeiture ([38]).

The same claim based on restitution would have failed: it was not possible to say that the consideration for the final quarter’s rent had totally failed ([42]).

Michael Lower

Forfeiture: rent / mesne profits where tenant has already given up possession when the landlord applies to court

September 3, 2012

In Wong Chun Yu v Kwong Siu Yin ([2004] HKEC 115 (LT) a tenant was in arrears with the rent. She claimed that she had given up possession in January 1991 (although there was no evidence that the landlord had accepted a surrender). In March 1991, the landlord applied to the court for possession because of the tenant’s default. The landlord sought rent / mesne profits for the period up to August 1991 (when he formally took back possession pursuant to a court order). In these proceedings, the tenant sought (among other things) leave to defend the landlord’s claim. There was some doubt as to whether she had indeed vacated the property by January 1991. The Tribunal held that if she had done so then she would have no liability to the landlord for rent or mesne profits for the period after the landlord applied to the court. The tenant was given leave to defend on this basis.

Single co-owner can distrain without the other’s authority

August 31, 2012

In Au Wing Lun v Cheung Chun Wah ([2010] 4 HKLRD 670, CA) A and B were the joint executors of X’s will and X had died. A obtained a warrant of distress against X’s tenant in respect of unpaid rent. The tenant applied to discharge the warrant and B applied to be joined as a defendant (there was a dispute as to the validity of the will but this had no impact on the tenant’s liability). The Court of Appeal confirmed that the judge below had been right to reject the applications. Executors are entitled to apply for warrants to distrain (Landlord and Tenant (Consolidation) Ordinance, s.106). One co-owner was entitled to apply in his own name and that of the other co-owner (Landlord and Tenant (Consolidation) Ordinance, s.107). The fact that the proceedings had been brought in the name of only one of the executors was a mere procedural irregularity and of no consequence.

Obligation to pay rent in advance; break clause; estoppel

April 19, 2012

In PCE Investors Ltd v Cancer Research UK ([2012] EWHC 884 (Ch)) C had granted a lease to P. The lease contained a break clause. One of the pre-conditions to the effective exercise of the break right was that the tenants must have paid the rent due up to the ‘Termination Date.’ Rent was payable quarterly in advance on the usual quarter days. The tenant served a notice on the landlord exercising the break right. The landlord served its demand for the rent due on the next quarter day. The demand sought the entire rent due for the next quarter even though the tenant’s notice, if effective, would bring the lease to an end before the end of the quarter. The tenant proffered rent calculated on a daily pro rata basis from the relevant quarter day to the Termination Date specified in its notice. It invited the landlord to confirm that its calculation of the rent due was correct but the landlord did not respond. The landlord then argued that the tenant’s notice exercising the break right was ineffective since only part of the rent due on the quarter date had been paid. The tenant responded that it was only liable to pay the amount due on a pro rata basis up to the date of termination. It also sought leave to amend its pleadings to include a plea that the landlord’s silence in the face of the tenant’s request for confirmation amounted to a representation that the calculation was correct and that the landlord was estopped from resiling from that representation.

Peter Smith J. made the point that each lease, and indeed each contract, has to be construed in the light of the objective intention of the parties to it and that decisions concerning similar words in other contracts, indeed even other leases, are of limited help. He concluded that there was no reason to depart from the plain words of the lease which required the full quarter’s rent to be paid in advance ([35] and [54]). He refused leave to introduce the estoppel point. In any event, he thought that there was nothing in it. The landlord had made no representation since it had received the tenant’s notice at the time it demanded the full quarter’s rent ([85]). The request for confirmation could not impose a duty on the landlord to comment ([86]). There was no evidence as to why the tenant believed it had only to pay rent on a pro rata basis; it refused to disclose the legal advice it had received ([91]). If there was a representation / belief it was as to the law rather than as to a fact ([96]). There is no ‘general proposition that where one party perceives the other side is making a mistake they have a duty to correct it.’ ([104]).

Equitable set-off and the covenant for quiet enjoyment

March 30, 2012

A tenant has an equitable right of set-off where there is a close connection between the landlord’s claim to rent and the tenant’s claim against the landlord. There could be such a link where the landlord is in breach of the covenant for quiet enjoyment.

In Ridge Ltd v Golden Castle Ltd ([2005] HKEC 1611, CA) T was the tenant of premises on the fifth floor of L’s building. L brought proceedings against T to recover rent arrears. T sought to resist summary judgment on the basis that it had an equitable right of set-off. T claimed that L was in breach of the covenant for quiet enjoyment since it had substantially interfered with the access to T’s premises during renovation work. The Court of Appeal was prepared to accept both that there might be an arguable claim for breach of the covenant for quiet enjoyment and (it seems) that it was in principle possible to set off such a claim against a landlord’s claim for rent arrears. The Court of Appeal nevertheless concluded that there was no sufficiently close connection between the two claims on the facts of this particular case.

Time of the essence?

February 29, 2012

Equity took the view that time is not of the essence for performance of contractual obligations unless the express words of the contract, the nature of the subject matter or the surrounding circumstances indicated to the contrary. After the Judicature Act 1873, this is the common law rule too. Thus, time is not usually of the essence with respect to the timetable in a rent review clause; the right to a review is not lost because of  a delay in taking any step envisaged by the clause.

Rent is a contractual payment for the use of the landlord’s land. There is no legal reason why a rent review cannot operate retrospectively.

United Scientific Holdings Ltd v Burnley Borough Council ([1978] A.C. 904, HL) concerned the rent review provisions in two leases. In each case, there was a failure to strictly adhere to the timetable established by the rent review clauses. The tenants claimed that time was of the essence with regard to each element of this timetable and that the result was that the landlord had lost its right to a review. The tenants also argued that, even if the landlord was entitled to a  review, the reviewed rent would only be payable once it had been fixed; there could be no retrospective obligation to pay the increased rent as from the review date. This, they argued, would run counter to the requirement that the rent be certain.

The tenants failed on both counts. The House of Lords pointed out that equity had taken the line that time is not of the essence for performance of contractual obligations unless the express words of the contract, the nature of the subject matter or the surrounding circumstances indicated to the contrary. After the Judicature Act 1873, this is the common law rule too (Judicature Act 1873, ss. 25(7) and (11) and Law of Property Act 1925, s. 41). Lord Simon of Glaisdale referred to the approach now adopted following Hongkong Fir.

There was nothing here to indicate that time was of the essence. Thus, the landlords could still invoke the rent review clause. The right could only be lost if the delay meant that it would be inequitable (not so here). It might be otherwise in cases where the tenant has a break clause that it can invoke once the review date has passed; this might be a circumstance indicating that time is of the essence.

The contractual provision that required the tenant to pay the arrears (if any) of the increased rent from the review date to the date when the revised rent is ascertained was also lawful. Rent is a contractual payment for the use of the landlord’s land. There is no legal reason why a rent review cannot operate retrospectively.

The nature of the process of fusion begun by the Judicature Acts is a major theme in several of the judgments.

Rent is not an essential element of a lease: Ashburn-Anstalt v Arnold

September 18, 2010

Lord Templeman appeared to suggest in Ashburn-Anstalt v Arnold ([1989] Ch 1) that an agreement to pay rent was an essential element of a lease. In Ashburn-Anstalt, the English Court of Appeal explained that this is not the case (and that Lord Templeman had not intended to say that a rent is an essential element of a lease).