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repayment of sums paid in advance following exercise of break clause

2 December 2015

The Supreme Court has today unanimously upheld the Court of Appeal decision that where a tenant exercises a right to break a lease, no term should generally be implied that the landlord must reimburse that tenant for sums paid in advance which relate to any period after the break date.

In this case, the tenant had four leases, each with identical break rights on 24 January 2012. Operation of the break clauses was conditional (amongst other things) on there being no arrears of basic rent on the break date.

As required by case law, the tenant paid the full quarter’s rents due on 25 December 2011 and successfully exercised the break rights. However, today’s ruling means that it cannot claim reimbursement of nearly £1m paid in advance covering the period from the break date up to the next quarter day.

It therefore remains imperative when negotiating a break clause in a lease to ensure that the lease contains an express clause obliging the landlord to reimburse such advance payments.

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