Not just any Break Clause…

Supreme Court dismisses Marks & Spencer’ appeal for repayment of overpaid rent following termination of Lease by break notice.

Prospective Tenants need to be wary of the way break clauses in leases are drafted following the case of Marks & Spencer plc (Appellant) –v- BNP Paribas Services Trust Company (Jersey) Limited and another (Respondents) [2015] UKSC72 which was decided late last year.

Marks & Spencer (M&S) were tenants of a part of a building under a Lease which included a break clause allowing them to break the lease conditional on there being no arrears of rent and on payment of a lump sum of just under £1m (reflecting exactly a year’s rent).

The break date fell in the middle of a quarter on 24 January 2012.  On the quarter day prior to the break date (25 December 2011) M&S paid the full quarter’s rent, full quarter’s car park licence fee and the full quarter’s on account service charge.  Approximately six months prior to the break it also paid a year’s insurance premium.  There was no provision in the Leases expressly obliging the Landlord to repay any rent in respect of the period following on from the break date. M&S nevertheless argued that the overpaid rent (in respect of the period after the Break Date) should be repaid to them.

The matter passed through the High Court and the Court of Appeal to the Supreme Court who ultimately concluded that:-
In the absence of an express term in a lease or indeed any other contract a term will only be implied if it satisfies the test of business necessity and:-

1. it must be reasonable and equitable
2. it must be necessary to give business efficacy to the Contract so that no term will be implied if the Contract is effective without it
3. it must be so obvious that it “goes without saying”
4. it must be capable of clear expression
5. it must not contradict any express term of the Contract.

The Supreme Court therefore concluded that the general law on apportionment of rent is that without an express term rent paid in respect of a period after the end of a Lease is not repayable by the Landlord.  In this case therefore M&S were not entitled to recover the overpaid rent.

Bruce Faulkner comments “In many cases this will not be an issue because Break Dates tend to fall at the end of a Rent Period but Tenants should ensure that, when negotiating break clauses, specific terms are included obliging the Landlord to repay any rent and other payments paid in respect of any period after the break date.

Although this particular case related to a break clause in a Lease, it also has relevance to other commercial situations and the message from the Supreme Court is clear that where there is a detailed commercial Contract the Court will respect the bargain struck and will not, unless absolutely necessary, interfere with what the parties have put in writing”

For further information please contact Bruce Faulkner on 01603 675608 or email bwf@rogers-norton.co.uk.