Two recent break clause cases concerned the ‘overrun’ of a tenant’s liability for rent and service charges beyond lease termination, each with very different outcomes and warning for landlords and tenants.
Cases, of course, turn on their facts, but they both raise interesting points.
In Friends Life Management Services v A&A Express Building, the tenant successfully complied with a break option on 24 March 2010. For each year, the landlord provided a likely expenditure estimate, apportioned between tenants and recovered in four payments via the service charge. For 2010, this included sums for work, most of which was done after the March break.
The tenant contended that the landlord could only recover its actual expenditure incurred up until the break date, while the landlord successfully argued it could recover all costs incurred in the year, apportioned up until the break.
For tenants, the implications of this case are important as this decision perhaps goes against the perceived ‘norm’. Although the break will draw a line on their contributions, the calculation of the contribution may be assessed on expenditure months after that. It is vital landlords consider that, when negotiating end-of-lease terms, claiming beyond a lease break may be a plausible option. The impact of this on a tenant’s budget provisions could be huge and must be considered by an adviser when planning an exit strategy.
Also vital is an understanding of the programming of works and costs even after lease end.
Within days of the Friends Life case, judgment was delivered in another case involving post lease-end liabilities. In Marks & Spencer v BNP Paribas Services Trust Company (Jersey) & Anr, it was held that the tenant was not entitled to a refund of a portion of the full-quarter’s rent (which it paid in order to effect the break). The lease had no express clause providing for such a refund and the Court of Appeal refused to imply such a term against ‘the relevant background’. Had the lease included an express apportionment clause, the story would have had a different ending.
Of course, the decisions in both cases may yet be overturned (and indeed the Supreme Court has granted M&S permission to appeal).
Julian Bisson is a partner and head of service charges at Malcolm Hollis