Legal Update May 2014 - Refunds Policy for Rent After Break Clause

Oct 22, 2026

Uploaded by Hazel

Legal update summarizing the Court of Appeal’s decision on whether a lease can include an implied repayment term for “overpaid rent” covering the “broken period” after the break date. The Court of Appeal unanimously held that no precedent supports implying such a repayment term and that a reasonable person would expect express provision. It contrasts the High Court’s implied-term approach with the appellate view that losses should remain where they fall.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages3

Reading Time8 min

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What’s the refunds policy for rent?

What was the issue?

What is the test for a term being implied?

What did the judge at first instance decide?

Why did the Court of Appeal reach a different conclusion?

Legal Update May 2014 What’s the refunds policy for rent? Summary The Court of Appeal has set the law straight on the debate over whether a term can be implied in a lease to enable a tenant to get back that part of the advance payment of rent (“the overpaid rent”) which relates to a period (“the broken period”) after the break date, by when the lease will have terminated. In an unanimous decision, the Court of Appeal has held that there is no precedent for implying a term for repayment of the overpaid rent for the broken period and that a reasonable person would conclude that if the parties had really intended there to be an implied term for repayment they would have made express provision for it. What was the issue? The appeal concerned a break clause in a lease. Tenants often negotiate such clauses, recognising that the landlord may well demand compensation, often in the form of a “break premium”, payment of which is made a pre-condition under the break clause. In this case, the parties negotiated a break premium but said nothing about apportionment of rent for the broken period, which the lease required the tenant to pay in advance on the usual quarter days. The issue for decision was whether a term could be implied into the lease that, if the lease is terminated by the tenant exercising his right to terminate it under the break clause, and the tenant has paid the rent due on the last quarter day in full, the tenant could claim back the overpaid rent which related to the broken period. What is the test for a term being implied? The applicable test for a term being implied is set out in the speech of Lord Hoffman in the Privy Council case of A.G.of Belize v Belize Telecom Ltd 1 namely: “21 It follows that in every case in which it is said that some provision ought to be implied in an instrument, the question for the court is whether such a provision would spell out in express words what the instrument, read against the relevant background, would reasonably be understood to mean……the question can be reformulated in various ways which a court may find helpful in providing an answer – the implied term must “go without saying”, it must be “necessary to give business efficacy to the contract” and so on…………..There is only one question: is that what the instrument, read as a whole against the relevant background, would reasonably be understood to mean?”. What did the judge at first instance decide? At first instance, the tenant argued that, as it was paying a substantial break penalty to the landlord to break the lease, the overpaid rent for the broken period should be returned. The tenant put its claim on several bases including: (i) the express terms of the lease,(ii) restitution; (iii) total failure of consideration; and (iv) implied term. Although he found against the tenant on all but one point, Mr Justice Morgan in the High Court agreed with the tenant and held that there was an implied term in the lease that the overpaid rent should be repaid, following the operation of the break. The core reasoning of the judge was that: • a reasonable person would consider that such a term was to be implied because the tenant should be in the same position as a tenant who paid the break premium on the last quarter day (“the same position conclusion”); and • the break premium amounted to a year’s rent (before any rent review) and so the parties could betaken to have agreed that this was the full amount of compensation for the landlord if the tenant exercised his right to determine the lease under the break clause and in those circumstances they were unlikely to have considered that the landlord should retain the rentforthe broken period as well (“the full compensation conclusion”). 1 [2009] 1 WLR 1988 The judge reinforced his principal reasons by a number of further reasons as follows: • the implications of the case law (rejecting an implied term) may have been less obvious atthe time the lease was drafte

FAQs

What question did the Court of Appeal address about rent repayment?

Whether an implied term could require repayment of overpaid rent relating to the period after the break date, where the lease was terminated under the tenant’s break clause right and the last quarter day rent was paid in full.

What test is used to decide whether a contract term can be implied?

The applicable test is whether the implied provision would spell out in express words what the instrument, read against the relevant background, would reasonably be understood to mean, including that the term must “go without saying” and be necessary for business efficacy.

Why did the Court of Appeal reject the implied repayment term?

It concluded that, considering all circumstances, the parties proceeded on the basis that the loss from overpaid rent for the broken period should lie where it fell, and that no implied repayment term should be inferred.

Oct 22, 2026

Uploaded by Hazel