Implied Contract Terms: Leases and Rent Refunds

Implied Contract Terms: Leases and Rent Refunds

Parties to commercial leases should appreciated and understand the extent of their rights and responsibilities to commercial landlords, to minimize the risk of disputes.  The expert commercial litigation lawyers at Bahamas firm ParrisWhittaker are highly experienced in providing legal advice to businesses on their commercial contracts and leases.

Refund of rent following break date

The Supreme Court in the UK is to hear an important case this year concerning break clauses, and the issue of landlords refunding monies paid in advance  partially relating to a period following the break date.

The High Court previously ruled(1) that there was an implied obligation on the landlord to refund to the tenant monies paid in advance which related, in part, to a period after the break date.  The ruling was based on the specific wording of the lease, and the court found that such an implied term was necessary to give business efficacy to the lease.  However, the court said there is not normally such an entitlement to a refund in the absence of an implied term to that effect.

However, the Court of Appeal overturned this ruling on the basis that the lease, read as a whole against the relevant background, would not reasonably be understood to include a landlord’s obligation to refund.  The test for an implied term was therefore not met.
The outcome of the forthcoming appeal will be highly important for landlords and tenants as the issue commonly arises in the context of commercial leases, and the breaking of a lease during a quarter.

For now, tenants breaking the lease will still be liable to pay the full quarter’s rent where payment of the rent is a condition to breaking – with a refund of part (from the break date to the quarter’s end) at the landlord’s discretion.

What does this mean?

Commercial tenants must protect their position: pending the outcome of the SC ruling, tenants must ensure the lease includes an express landlord’s obligation to refund (assuming the break was successful).  The obligation to do so will not automatically be implied unless the SC rules otherwise.

How can we help?

The commercial litigation lawyers at ParrisWhittaker have years of experience advising commercial organisations on their liabilities under their business leases.  If you have a potential dispute with your landlord, we advise you to contact us straightaway for urgent advice.

(1) Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Limited and another [2014] EWCA Civ 603