Business as usual – Supreme Court confirms Court of Appeal decision in Marks and Spencer plc v BNP Paribas

The interpretation of tenant break clauses has always been an area where the court routinely finds in favour of upholding the exact wording in the lease, regardless of the seemingly unfair impact that this may have upon the tenant and the tenant’s business.

As such the recent decision of the Supreme Court in Marks & Spencer plc v BNP Paribas Security Services Trust Company (Jersey) Limited and another [2015] UKSC 72 will not come as a surprise to most practitioners. It should also give landlords the confidence to both demand and keep a full quarter’s rent from any tenant seeking to terminate their lease in the middle of a quarter by operation of a break clause, except in cases where there is a clear clause to the contrary.

The facts of the case were that Marks and Spencer successfully exercised a right to break a lease of which they were the tenant on 24 January 2012. In advance of the break date, Marks and Spencer had correctly paid the whole of the December quarter’s rent and other sums due for the period from 25 December 2011 to 25 March 2012.  The case concerned Marks and Spencer’s attempt to recover the overpayment made from the landlord.

Back in 2013 the High Court at first instance implied a clause into the lease entitling Marks and Spencer to a refund of the overpaid rent. There followed a brief period of uncertainty, as tenants sought to rely on this decision to claim back their overpaid rents.

The case was appealed, and the Court of Appeal’s decision in 2014 reverted to the status quo and concluded that it was not possible, in the absence of an express term, to simply imply a clause entitling the tenant to a refund.

The decision of the Supreme Court upheld that of the Court of Appeal and determined that save in a very clear case, it would be wrong to attribute to a landlord and a tenant an intention that the tenant should receive back an apportioned part of the rent paid in advance.

The Supreme Court also confirmed the settled law that the Apportionment Act 1870 would not assist the tenant in this instance as it is only of application when rents are paid in arrears.

The Supreme Court used their decision to rehearse the law regarding implying terms into contracts and reiterated that a term would not be implied into a commercial contract merely because it appeared fair. The guidance was that a clause should only be implied, if without it, the contract would lack either commercial or practical coherence.

Practice points

• Landlords should be clear that unless the lease expressly says otherwise, if a tenant breaks a lease in the middle of a quarter, the landlord is entitled to demand and keep the entire quarter’s rent and the tenant is not entitled to a refund of this sum.
• Tenants of existing leases, which do not contain an express term, need to be aware of the additional cost burden of terminating a lease in the middle of a quarter. Where a tenant has a rolling break they should aim to exercise this at the end of a quarter so that they minimise the period for which they are paying rent beyond the termination of their lease.
• Tenants entering into a new lease should be careful to ensure that where a lease gives them a right to break, a provision is included that entitles them to claim back any sums of rent paid beyond the expiry of the lease.

If you have any questions about this article, please do not hesitate to contact the property litigation or property team.