24 March 2016 by Michelle Footer

Supreme Court ruling in M&S break clause case: implications for commercial landlord and tenants

This case concerned a tenant’s right to break a lease and resulted in a three year legal battle between the landlord and the tenant. The landlord was BNP Paribas Securities Services Trust Company (Jersey) Limited (‘BNP Paribas’) and the tenant was Marks & Spencer PLC (‘M&S’).

Case Facts

M&S had leased premises in Paddington from BNP Paribas and were using this as their head office. In January 2012 M&S exercised their right to break the lease on 24 January 2012. The break clause contained within the lease a relatively standard provision with a number of pre-conditions including: (1) the payment of a premium of a full year’s rent; and (2) that there must be no rent arrears at the break date.

Under the terms of the lease M&S were required to pay the rent yearly in advance on the usual quarter days. On 25 December 2011 M&S made a full quarter’s rent payment for the period 25 December 2011 to 24 March 2012. M&S had complied with the pre-conditions to the break and the lease came to an end on 24 January 2012.

M&S then considered that they were entitled to recover the ‘overpayment’ of the quarterly rent, i.e. the rent paid for the period from the break date to the end of the quarter on the basis that they were not in occupation of the premises during this time. The landlord refused to return the overpayment as there was no express clause within the lease which required them to do so.

M&S commenced a claim in the High Court who concluded in the first instance that M&S was entitled to a refund of the ‘overpayment’. However, BNP Paribas were not content with this decision and they appealed to the Court of Appeal where the decision was subsequently overturned. M&S sought permission to appeal this decision and Court of Appeal granted them permission to appeal to the Supreme Court for a final determination on the issue.

Case Decision: Supreme Court’s Judgment

The Supreme Court reviewed the decisions of both the High Court and the Court of Appeal and concluded that it was not appropriate to imply a term that entitled a tenant, that has exercised a break clause, to a refund of the rent and other payments that it had been paid in advance in accordance with the express terms of the lease.

The Supreme Court commented that the express terms of the contract should be interpreted before any implied terms were considered and just because a term appears fair and reasonable to one party does not mean that it should be implied into a professionally drafted and negotiated lease.

Implications for tenants

Before the High Court’s first instance decision it was accepted law that if a break date fell in the middle of a rental period that any money paid in advance for the period after the break date would only be recoverable if the lease expressly provided for it. The High Court’s decision changed this widely accepted rule and landlords, tenant and practitioners eagerly awaited the outcome of the M&S case to clarify this point.

The rule is now clear and it is important that when negotiating terms of a lease, where a break is conditional on payment of rent, a tenant ensures that either (1) the break date falls the day before the quarter date; or (2) the lease contains an express provision requiring a landlord to refund the rent from the break date to the end of the quarter.

If you are a commercial landlord or tenant and have any queries regarding the above, then please contact Michelle Footer in our Property Litigation team on 0207 288 4782 or by e-mail at michellefooter@boltburdon.co.uk.

18 March 2016 by

The truth and nothing but the truth – Commercial Property Standard Enquiries

It is best practice for potential buyers of commercial properties, or prospective tenants of commercial premises, to raise standard enquiries […]

23 March 2016 by

Challenging times for football’s current transfer system

FIFPro, the worldwide representative body for professional footballers, is challenging FIFA’s Regulations on the Status and Transfer of Players (“RSTP”). […]

Signup To Our Weekly e-News

"*" indicates required fields

We’ll never share your details with any third party in line with our privacy policy.