The M&S break clause case has been rumbling on for three years now, during which we have given updates and presentations on the Court of Appeal decision. It seems now that it is finally done and dusted.
The case concerned a tenant’s right to break a lease. The tenant was Marks & Spencer Plc (“M&S”), and the Landlord was BNP Paribas Securities Services Trust Company (Jersey) Limited (“BNP Paribas”).
In January 2012, M&S exercised their right under a break clause in their lease to terminate the tenancy. The break clause contained a (standard) pre-condition that there were no rent arrears to be effective. The rent under the lease was payable yearly in advance on the usual quarter days. M&S made their rent payment on the usual quarter day in December 2011. The break was successful and the lease terminated on 24 January 2012.
M&S sought to recover the apportioned rent from the break date, 24 January 2012, to the next quarter day – 24 March 2012. There was no express obligation in the lease providing for the Landlord to refund the apportioned rent.
In the first instance, the High Court concluded that M&S was entitled to a refund. BNP Paribas appealed to the Court of Appeal and were successful in overturning the decision. The Court of Appeal also granted M&S permission to appeal to the Supreme Court, which they duly did.
The Supreme Court’s Judgment
Lord Neuberger handed down the leading judgment, which is a fascinating one. Lord Neuberger identified that the key point was that the express terms of a contract must be interpreted before the issue of implied terms is considered. He further believed that just because a term appears fair and reasonable it does not mean it should be implied into a detailed commercial contract. He concluded that it would be wrong for the court to insert an intention into the lease that the tenant should receive back an apportioned rent which had been paid in advance, where the landlord and the tenant had entered into a fully negotiated and professionally drafted lease. This was evidenced by the tenant being required to pay a substantial payment to break the lease.
Implications – what this means for tenants
Tenants may not welcome the decision but it is an important one. Many tenants would have considered that as a matter of fairness, a Landlord should refund rent paid in advance after a break date.
It is therefore very important for a tenant to ensure that their lease contains an express term that, where a break is conditional on all rent being paid, an obligation on the Landlord to refund the rent (and any VAT, if applicable) from the day after the termination date to the end of the quarter.
The alternative, and perhaps easier to negotiate, is for a tenant to ensure that their legal advisors draft any break date in their lease to be on the last day of the quarter.
If you would like further advice or information about the issues raised in this article, for example in relation to lease drafting and negotiating, or interpreting and utilising of break dates, contact Alex Wilson-Jones at email@example.com or Edward Thompson at firstname.lastname@example.org