In Marks and Spencer PLC v BNP Paribas Securities Services Trust Company (Jersey) Limited & Anr  EWCA Civ 603 the Court of Appeal overturned the High Court decision that Marks and Spencer PLC was entitled to be reimbursed rent paid in advance for a period of time following the expiry of a break notice terminating the tenancy. In doing so, the Court of Appeal reaffirmed that, in the absence of an express clause to the contrary, a tenant is not impliedly entitled to a refund of rent paid in advance which relates to the period after the break date.
Marks and Spencer PLC (“the Tenant”) entered into a 12 year lease of four floors of an office in Paddington with rent payable quarterly in advance. The lease contained a break clause that allowed the lease to be determined on 24 January 2012 (break date) on the following conditions:
The Tenant giving six months notice;
There being no arrears of rent (or VAT on the rent) on the break date; and
The Tenant paying a break premium equivalent to one years rent on, or prior to, the break date.
The lease did not contain an express provision dealing with the Tenant’s entitlement to any refund for the rent paid that was referable to the period after the break date.
In accordance with the conditions of the break clause, the Tenant served notice on the BNP Paribas Securities Services Trust Company (Jersey) Limited (“the Landlord”) more that 6 months in advance of the break date. Subsequently, the Tenant paid a full quarters’ rent due on the December quarter day and paid the break premium on 18 January 2012.
The relevant conditions were met and the lease ended on the break date in accordance with the terms of the break clause.
The Tenant demanded repayment of rent and other payments for the remainer of the quarter following the break date, namely from 25 January until 24 March 2012. The Landlord refused to repay the rent. Accordingly, the Tenant issued proceedings.
HIGH COURT’S DECISION
The High Court found in favour of the Tenant, implying a term into the lease allowing for excess rent to be returned to the Tenant. The High Court reasoned that as the Tenant had already paid the break premium, it could not have been the parties’ intention for the Landlord to keep the rent referable to the part of the quarter day after the break date as well. See our note on the High Court decision in the link above.
COURT OF APPEAL’S DECISION
The Court of Appeal overturned the High Court decision, reasserting the well established principle that a term can only be implied into a contract if it is necessary to achieve the parties’ express agreement.
In her leading judgment, Arden LJ confirmed that:
“the starting point should be that if there is no express term, none should be implied because if the parties intended that a particular term should apply to their relationship they would have included a term to that effect, rather then leave it to implication”.
In this instance it should have been obvious to the parties that if the Tenant were to exercise the option to break the lease, rent would need to be paid in full (including for the remainder of the quarter after the break date) on the last quarter day as a condition of the successful operation of the break clause.
The parties could easily have dealt with the issue of apportionment when the lease was negotiated, inserting express provisions into the lease for the Landlord to make repayments to the Tenant following the break date but they did not do so. Hence no such clause should be implied.
It is standard practice for a landlord to require full payment of quarterly rent due in advance where the option to break the lease is conditional. At the time rent is paid, there is no guarantee that a tenant will meet all relevant conditions and the break will be successful.
Tenants should consider negotiating the inclusion of a clause to the effect that any rent paid in advance and referable to the period following the expiry of a break notice should be refunded on the successful operation of the break.
For more information about break clauses and rent, please speak to Julian Johnstone, Head of Druces LLP’s Litigation and Dispute Resolution team.