UK: No Marks And Spencer Returns - Lease Break Notices And Problems For Tenants In Claiming Back "Overpayment" Of Rent

The decision

The Court of Appeal yesterday, in the case of BNP Paribas v Marks and Spencer, brought to an end any euphoria tenants may have been experiencing from the first instance judgment of Mr Justice Morgan regarding their rights to recover "overpaid" rent after they served a break notice bringing their lease to an end on a date before the last day of that quarter. 

Mr Justice Morgan was prepared to imply a term into the lease between the parties to the effect that if the full quarter's rent is paid in those circumstances then, once the lease has terminated, the tenant is entitled to repayment of the part of such rent that relates to the post-lease period.  This decision was welcomed by tenants wanting to break their lease as it encouraged them to think that though all of the rent for the quarter may have to be paid it would be possible to get the overpayment back in the future.  Assuming that there will be no successful appeal to the Supreme Court, tenants will not now be able to recover any such overpayment once the lease has ended unless they are able to point to an express term in the lease or demonstrate very clear indications in the lease that would indicate an implied term to this effect was necessary.

Significance

Though there has been much interest in this case and how it will affect the world of commercial letting it should be noted that both Mr Justice Morgan and the Court of Appeal reached their conclusions based on a close reading of the specific terms of the lease involved.  Any landlord or tenant thinking about how the rent payment should be treated in the context of a break notice will, therefore, have to look at the specific terms of their lease closely before applying the Court of Appeal's analysis to their circumstances.

Alternative Possibilities?

One other point to note is that the Court of Appeal did not criticise Mr Justice Morgan's indication (at paragraph 28 of his judgment) that where all conditions other than the payment of rent required by the break clause (the only one in that case was the payment of a break premium) have been met on the last quarter's day then there would be sufficient certainty about the lease ending on the break date for the tenant to make an effective break by paying rent apportioned up to the break date.  Indeed, Lady Justice Arden in the Court of Appeal expressly indicated that their decision only related to a situation where "it was not certain on that date that the other pre-condition for the operation of the break clause (payment of the break premium) would be duly made" (paragraph 20) and tentatively stated it "would seem to be correct" that "the lessee could make a proportionate payment of rent on the last quarter day if he had by then also paid the break premium" (paragraph 41). 

Many break clauses are conditional only on the payment of rent or other terms which the tenant may be able to demonstrate have been satisfied by the last quarter day.  It may be, therefore, that tenants of such leases who have by the last quarter day satisfied all break conditions other than payment of rent could avoid the problem of not being able to recover an overpayment of rent by paying rent apportioned to the break date.  Unless, though, the tenants are particularly bold they may wish to reduce their risk by obtaining a declaration from the court regarding the issue prior to the last quarter date before the break date.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.