The ‘M&S break clause case’ has been rumbling on for three long years, during which time it has been batted back and forth in the courts. Now, however, the Supreme Court has made a final ruling which will have some serious implications for tenancy agreements going forward.
The background: Marks and Spencer PLC (M&S) v BNP Paribas Securities Services Trust Company (Jersey) Limited (Paribas)
- In January 2012, M&S exercised its right, under a break clause in its lease, to terminate the tenancy of its former offices in Paddington. The break clause contained a (standard) pre-condition that there were no rent arrears to be effective. The rent under the lease was payable yearly in advance on the usual quarter days. M&S made its rent payment on the usual quarter day in December 2011. The break was successful and the lease terminated on 24 January 2012.
- M&S sought to recover the apportioned rent from the break date, 24 January 2012, to the next quarter day – 24 March 2012. Although there was no express obligation in the lease providing for the landlord to refund the apportioned rent, the High Court concluded that M&S was, nevertheless, entitled to a refund.
- BNP Paribas appealed to the Court of Appeal and was successful in overturning the decision. The Court of Appeal also granted M&S permission to appeal to the Supreme Court, which it duly did.
The Supreme Court’s ruling:
Lord Neuberger identified that the key point was that the express terms of a contract must be interpreted before the issue of implied terms is considered. He further believed that just because a term appears fair and reasonable, it does not mean it should be implied into a detailed commercial contract.
He concluded that it would be wrong for the court to insert an intention into the lease, that the tenant should receive back an apportioned rent which had been paid in advance, where the landlord and the tenant had entered into a fully negotiated and professionally drafted lease. This was evidenced by the tenant being required to pay a substantial payment to break the lease.
In addition to not receiving a repayment of the rent paid for the period following the termination of leases at its former Paddington offices, M&S will now face a very substantial legal bill.
Explaining the wider implications of the Supreme Court ruling, Maisie Yau, a solicitor specialising in commercial property law with Palmers, said: “Tenants may not welcome the decision but it is an important one. Many tenants would have considered that as a matter of fairness, a landlord should refund rent paid in advance after a break date.
“The onus is now on the tenant to ensure that their lease contains an express term that – where a break is conditional on all rent being paid – there is an obligation on the landlord to refund the rent and any VAT, if applicable, from the day after the termination date to the end of the quarter.
“The alternative, and perhaps easier to negotiate, is for a tenant to ensure that their legal advisors draft any break date in their lease to be on the last day of the quarter.
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