The Supreme Court unanimously decided in favour of the landlord, BNP Paribas, affirming the previous Court of Appeal decision and dismissing M&S’s appeal. In summary, M&S opted to exercise the break notice in the lease to take effect on the ‘first break date’, namely 24 January 2012. For the break notice to take effect on this date, the lease required M&S to pay to the landlord the sum of £919,800 plus VAT before the first break date. M&S paid this sum on or around 18 January 2012. M&S also had to ensure that, on the break date, there were no arrears of rent. M&S paid rent in advance for the quarter period from 25 December 2011 up to and including 24 March 2012. M&S sought to recover an apportioned sum of rent for the period from 24 January 2012 (when the break notice took effect) up to and including 24 March 2012.
Despite M&S having a strong argument, contending that allowing BNP Paribas to retain the rent would be unfairly prejudicial to M&S and a pure windfall to BNP Paribas, the Supreme Court agreed with the Court of Appeal that it would not be right in the circumstances to infer into the contract an implied term entitling M&S to an apportioned refund of ‘overpaid’ rent. M&S were unable to recover the sums paid.
Accordingly, when a tenant exercises a break clause to determine its lease, and is required to have paid all the rents due for payment under the lease for the break to be effective, it will be unable to recover any of the rent that relates to any period after the break date unless there is an express clause in the lease providing forth return of the rent. The Supreme Court placed significance on the fact that the terms of the lease were carefully considered and had been professionally drafted.
What does this mean for tenants?
With respect to leases containing a break clause, particularly when the terms require the tenant to pay rent quarterly in advance, this decision will serve as a reminder to tenants and their lawyers to negotiate the inclusion of a clause entitling the tenant to an apportioned rent refund (together with any other payments) for the relevant period between the break date and the next rent repayment date.
Our article on the Court of Appeal decision is at https://www.druces.com/marks-spencer-rent-refund-case-overturned-in-the-court-of-appeal/.
Please speak to Julian Johnstone, Head of Druces LLP’s Property Litigation practice if you have any queries about this matter.