Landlord and Tenant Disputes - Refunds of rent paid in advance for a period beyond the termination date
On 7th July 2011, the tenant (M&S) served notice on the landlords (BNP) to terminate their lease. In common with many commercial leases, the lease contained a ‘break clause’ allowing the tenant to terminate. The effect of the notice was to terminate the lease on 24th January 2012. On 19th July 2011, the landlords invoiced the tenant for a sum in respect of insurance for the property. The period of insurance was 1st July 2011 to 30th June 2012 i.e. beyond the termination date. On 2nd August 2011, the tenant paid the landlords the full sum.
On 8th December 2011, the landlords invoiced the tenant in relation to the Basic Rent, Car Park Licence Fee and service charge due on 25th December 2011. The sums payable were for the period from 25th December 2011 to 24th January 2012. On, or around, 25th December 2011, the tenant paid the landlords the full sums due for the entire quarter, 25th December 2011 to 24th March 2012. They did so to avoid the possibility of the break notice being ineffective; in other cases, courts had previously decided that obligations to pay rent proportionately for any part of a year did not apply to the final quarter rent payment which was payable in full on its due date before the expiry of the break notice.
Requesting the refund
On 9th February 2012, the tenant wrote to the landlords to request a refund of the overpayments but the landlords refused on the basis there was no express term in the lease requiring a refund in these circumstances. The tenants therefore brought a claim for repayment of the sums which it had overpaid for the period after 24th January 2012.
The court decided that the tenant was entitled to be reimbursed the overpayment made in relation to Basic Rent, Car Park Licence Fee and insurance on the basis there was an implied term in the lease. It is very unusual for a court to rule that there is an implied term and in this case the decision was specific to this particular lease.
Should tenants be entitled to claim refunds?
The case does not affect the best advice for tenants invoking a break clause which is conditional upon settlement of all arrears i.e. that they pay a full quarter’s rent to avoid any risk that the conditions attached to the break have not been complied with. However, the case does raise the possibility that, in certain circumstances, tenants who have overpaid may be entitled to claim a refund on the basis of an implied term.
We understand BNP are appealing the decision and that the appeal is due to be heard in March 2014. If the decision is upheld, it could mean a major change in the approach taken by the courts. Until this decision, the courts usually took the view that the landlord was not required to refund any rent that had been ‘overpaid’ by the tenant, unless the lease specifically provided otherwise.
Tenants should continue to press landlords to include an express refund provision in any new lease. It is imperative that landlords seek legal advice at the outset of a tenancy dispute.
