UK: The Supreme Court Has Ruled In Favour Of Landlords In A Case Which Considers Implied Terms In Leases, And Specifically In Break Clauses

In the case of Marks and Spencer Plc v BNP Paribas Securities Services Trust Company (Jersey) and another [2015] UKSC 72, Marks and Spencer sought a refund of rent it had paid for a period after the break date of its lease. The tenant asked the Court to imply a term in its lease which would oblige the landlord to refund the sums paid by the tenant for the period after the break date. The Court refused and so the landlord was entitled to keep the rent paid in advance by the tenant.

The facts

Marks and Spencer exercised its break right to determine the lease on 24 January 2012 midway through the quarter, after it had paid the full quarter's rent due on the December 2011 quarter day. The lease stated that the rent was payable by the tenant in the normal way, in advance on the usual quarter days. The break was conditional on payment of rent and of a substantial break penalty. The conditions of the break were satisfied by the tenant. The issue considered by the Supreme Court was whether the tenant could recover from the landlord the rent for the period from the break date for the rest of the quarter. There was no express wording in the lease obliging the landlord to pay the apportioned rent sum back to the tenant.

The tenant argued that if the tenant exercises the right to break and the lease determines on the break date, the landlord ought to pay back a proportion of the rent paid by the tenant in advance.

The decision

The Court decided that the parties had entered into a lease which was negotiated with a clear understanding that rent payable in advance was not apportionable on a time basis. Against this background the Court felt that it could not imply an obligation in the lease which would save the tenant from a bad agreement. The Court was clear that the effect of the law is that rent payable and paid in advance can be retained by a landlord except in very exceptional circumstances and so express words would be needed in the lease before the tenant could get a refund.

The Court considered the application of implied terms and the rules of apportionment relating to rents. It concluded that neither the common law nor law set out in statute relating to apportionment of rent paid in advance on a time basis saved the tenant, in leases where there was no express term in the lease on apportionment of rent.

This case is a sharp reminder of the importance of good legal advice when negotiating a new lease of premises. Here the omission of a few simple, but important words, when the break option in the lease was negotiated a handful of years earlier has proved costly for the tenant.

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