In the recent case of Marks & Spencer Plc v BNP Paribas Securities Services Trust Company (Jersey) Limited and another [2013] EWHC 1279 (Ch) the tenant, Marks & Spencer Plc (M&S), established that they should not be short changed when they exercised a break clause part-way through a quarter. However, will this apply to all cases? The High Court was on this occasion prepared to imply a term into the lease entitling the tenant to a repayment of the rent from the break date to the end of the quarter. This decision is the first departure from the previously widely accepted view that in the absence of an express provision, a tenant will not be entitled to a refund of any rent or other sums paid that relates to the period after a break date.
Background
A tenant's right to break is often conditional on the payment of all sums due under the lease up to the break date. This condition is surprisingly something which a number of tenants will nevertheless fail to comply with.
The correct advice to a tenant has always been (and still remains) to pay all payments due under the lease in full and then face any difficulties recovering any amount overpaid from the landlord attributable to the period after the break date. However, in the recent M&S case, the Court found in favour of the tenant who, having successfully operated a break, requested a refund of the rent and other payments it had made for the period after the break date.
Facts
M&S was the tenant at The Point building in Paddington under four materially identical leases. Each lease contained the right to break by giving a certain period of notice, subject to there being no arrears of the basic rent on the break date (and payment of a penalty premium equivalent to a years rent on or before that date). Rent under the leases was payable quarterly in advance, in the usual way. Break notices were duly served at the appropriate time, and subsequently, payments of the full quarter's rent, service charge and penalty payments were made.
M&S requested a refund of the sums paid for the period after the break date. The landlords refused this stating that there was no express term in the leases that required this.
The Court rejected M&S's arguments that the express terms of the leases provided for a refund of the rent and their arguments for restitution based on unjust enrichment of the Landlord. The Court ruled in M&S's favour that on the facts of the case it was an implied term of the lease that rent paid in respect of the period after the break date must be repaid after the lease had successfully been brought to an end in accordance with the break clause. The high level of the penalty payment was a distinguishing factor and the Court felt it was unlikely that it would have been the intention of the parties for the landlords to keep the full quarter's rent as well as the penalty payment. The Court also accepted that the proportion of the service charge and insurance rent paid after the break date should also be repaid.
Implications and points to note
- In the absence of an express term, do not apportion rent and other payments up to a break date as this is most likely to invalidate the operation of the break
- Whilst the M&S case provides a good argument that the landlord should provide re-imbursement for the amounts attributable after the break date landlords are likely not to agree this unless a penalty payment for exercising the break is also required
- It may be that some tenant's who have operated breaks in similar circumstances to the M&S case over the past years will now seek to recover any sums attributable to the period after the break
Marks & Spencer Plc v BNP Paribas Securities Services Trust Company (Jersey) Limited and another [2013] EWHC 1279 (Ch)
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