One of the features of the recent Supreme Court judgment in Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Limited [2015] UKSC 72 was the unequivocal approval of the Court of Appeal decision in Ellis v Rowbotham [1900] 1 QB 740 on the liability of a tenant to pay, in full, rent reserved quarterly in advance. Without express words to the contrary, rent payable in advance is not capable of apportionment under the Apportionment Act 1870. Hence, where a tenant exercises a break clause, on the last rent day before termination a full payment remains due, unless there is something expressed to the contrary in the lease. The point is equally applicable in relation to other methods of termination.
Surrender
Where a tenant enters into an agreement for surrender, it should include express provisions to deal with liabilities up to the date of the surrender. As regards rent, if it is payable in advance, and the surrender takes place between rent days, the tenant is not entitled to a refund of any part of the rent paid, unless there is agreement to the contrary. A tenant therefore needs to bargain for this when negotiating the agreement for surrender. See William Hill (Football) v Willen Key & Hardware [1964] 108 SJ 482.
In the rare case where rent is payable in arrear, the Apportionment Act 1870 can apply (see section 3 AA 1870), and the landlord will be entitled to recover an apportioned part of the rent notwithstanding the termination.
Forfeiture
The case of Ellis v Rowbotham was a termination dispute involving forfeiture of a lease for unpaid rent that was payable in advance. The Court of Appeal held that the Apportionment Act 1870 did not apply to rent payable in advance so that the landlord was entitled to sue for the full payment due. The point was also dealt with in the case of Capital & City Holdings Ltd v Dean Warburg [1989] 1 EGLR 190 in which the court held that, following forfeiture of a lease, the landlord was entitled to recover from a tenant’s guarantor the whole of an instalment of rent which had accrued due just before the date of forfeiture.
Lease expiry?
What is absent in judicial analysis is case law on a tenant’s liability at the end of the term. Relevant case law in this area relates to termination of leases by surrender, break or forfeiture, but the same point arises at lease expiry. The Apportionment Act 1870 only enables apportionment in respect of rents payable in arrear, and at common law, rent cannot be apportioned in respect of time (see Clun’s Case (1613) 10 Co Rep 127a). Hence, the tenant who does not ensure its lease expires at the end of a payment period, or who does not provide for the last payment to be an apportioned payment, is contractually liable to pay for a period beyond the expiry date. Indeed, this seems clearly implicit in comments made in Marks and Spencer plc v BNP Paribas.
Lord Neuberger, in relation to the effect at lease expiry of rent having been reserved “yearly and proportionately for any part of a year” said (at paragraph [35]), that: “It is common ground that the effect of the italicised words [of apportionment] is that, if the Lease had run its full course to 2 February 2018, the tenant would only have had to pay an apportioned part of the Basic Rent due on 25 December 2017, because, as at that date, the parties would have known that the Lease would expire before the next quarter day, 25 March 2018.” The clear implication is that if the lease had not contained those words, a full quarter would have remained due, notwithstanding the lease was due to expire.
At the beginning of a lease, completion often takes place between quarters, in which case the reservation of rent usually provides for payment of “the first instalment or a proportion (calculated on a daily basis) in respect of the period beginning on the [completion day, or later rent commencement date] and ending on the day immediately preceding the next quarter day”. In some cases, at the end of the lease, the lease term may end between quarter days.
However, a reference to apportionment of the first payment will not be construed as also permitting apportionment of the last payment under the lease; see Capital & City Holdings Ltd v Dean Warburg [1989] 1 EGLR 190. Clearer language would be required. In practice, where a lease is due to expire, the landlord’s agent usually only expects the tenant to pay rent apportioned to the departure date. Liability for the full quarter is only likely to be enforced in early termination cases. However, for the tenant’s sake, the lease should be checked to ensure that the reservation of rent includes sufficient words of apportionment applicable throughout the term (and not just at the start of the lease).
1954 Act statutory continuation.
Of course, where a lease is to continue under Part II of the Landlord and Tenant Act 1954, the landlord would not expect the tenant to attempt to apportion end of term payments. The tenancy is to continue upon the same terms. Where the lease is already continuing under the 1954 Act and the tenant gives notice to the landlord under section 27(2) LTA 1954 to terminate its statutory continuation, section 27(3) LTA 1954 expressly provides for an apportionment of advance rent: “Where a tenancy is terminated under subsection (2)… any rent payable in respect of a period which begins before, and ends after, the tenancy is terminated shall be apportioned, and any rent paid by the tenant in excess of the amount apportioned to the period before termination shall be recoverable by him.”
The inclusion of this statutory right to apportion infers that, absent this provision, no such apportionment could be made. However, there is no similar apportionment provision where notice is given under section 27(1) (i.e. not less than three months’ notice to expire on the contractual term end date). Hence, unless the lease term began on a quarter day, or there is an express apportionment provision in the lease, apportionment at termination does not appear to be available.