Property Litigation

Break Clauses

The case of Marks & Spencer plc v BNP Paribas Security Trust Company (Jersey) Ltd is not so much about break clauses but apportionment of rent. The break clause required all rent to be paid to date for the break to be effective. The rent was paid quarterly in advance. The break date fell between two quarter days and M&S sought to recover the rent for the period after the break date until the end of the quarter.

Decision

The Supreme Court gave their judgment on M&S’s claim today. Agreeing with the Court of Appeal, the Supreme Court dismissed the case and held that if a tenant wants the right to a refund for rent paid in advance after a break date then this must be set out expressly in the lease.

Facts in more detail

M&S had four leases of floors in an office building in Paddington, London. The leases continued a right to break the term on 24 January 2012. Marks & Spencer served the break notices on 7 July 2011 in the correct form and at the correct time. There was no dispute that the leases came to an end on the break date.

Rent due under the leases was payable quarterly in advance. On 25 December 2011 M&S paid the full quarter’s rent due for all leases covering the period up to and including 24 March 2012, and on 18 January 2013 the sum of £919,800 plus VAT which was payable as a condition of exercising the break..

Perhaps spurred on by the landlord initially issuing invoices for the December quarter’s rents up to the break date of 24 January, M&S asked for a refund for the rent they had paid from the break date up to 24 March. The landlord then advised M&S that those invoices were incorrect and refused to give any credit for rent paid after the break date.

Marks & Spencer brought proceedings to recover the “overpaid” rent. As the trial judge pointed out and in line with previous cases, M&S had to pay the full quarter’s rent on the December quarter day (as they had done so) to fulfil the condition of exercising the break  that ‘all rent is paid to date’. Before the actual break date it cannot be known whether the tenant has complied with all the conditions of the break clause and that the break will be effective.

The trial judge accepted M&S’s argument that having successfully exercised the break, it should be repaid an apportioned part of the rent it had paid for the period after 24 January to 24 March. He held that a term should be implied to this effect in the leases to give them business efficacy. He concluded that a reasonable person would consider it odd that a tenant should have to pay rent for a period when it was not in occupation. In addition the fact that the lease provided for the landlord to receive a capital payment equivalent to a year’s rent showed that the parties had addressed the question of compensation to the landlord for the tenant’s early exit.

The Court of Appeal disagreed and held that such a term should not be implied. If the parties had intended the rent to be apportioned in such circumstances, they should put provisions to this effect in the lease. As a result, M&S had to repay the rent refunded to it following the earlier decision.