Landlord and tenant: can an occupier who leaves before their contract ends demand reimbursement of their payment on account?

In Edstaff Ltd v Anglo Overseas Group (Properties) Ltd, A granted a licence to E to occupy premises. The licence fee was £450 per month plus VAT. The licence contained a provision that it could be determined by either party on giving one month's notice to the other. After a couple of months, E negotiated with A to pay 12 months' licence fee up front, in return for a small discount on the fee. E duly paid A £6,000, equating to approximately £425 per month plus VAT. E emailed A requesting confirmation that the termination provisions in the licence would be suspended during that 12 month period.

Approximately eight months later, E gave a month's notice to terminate the licence. It claimed a refund of the fee it had paid for the remaining three months. The two lower courts found that the effect of the revised arrangement was that A would waive its right to terminate on a month's notice but that there was nothing which provided that E would waive its right to do so, and ordered A to refund E.

The Court of Appeal disagreed. It held that the email could only be construed as suspending both parties' rights to terminate for the duration of the arrangement. E had secured its right to occupy for a further 12 months, but precluded its earlier departure without forfeiting the remainder of the licence fee. A was assured of its licence fee for a full 12 months, but could not terminate if it wished to make other, more profitable use of the premises during that period.

Things to consider

While this decision rests very much on its facts and relates to a licence, it serves as a reminder of the principles which apply when a tenant exercises a break clause under a lease. Where (as is usual) rent is payable quarterly in advance, the generally accepted position is that rent is not apportionable in the event that the break is operated. In other words, the full quarter's rent will be due even though the lease will end part way through the quarter, unless the lease provides otherwise.

This analysis was written by Sarah Allen, associate in Wragge & Co's Real Estate group.

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