Not just any break case: Supreme Court unanimously holds that a term will not be implied to refund excess rent following a break
Author: Nick Shepherd
Applies to: England and Wales
The Supreme Court has today released its long-awaited judgment in the case of Marks & Spencer PLC v BNP Paribas Securities Services Trust Company (Jersey) Limited.
By way of reminder, the case concerned a claim by M&S, following the exercise of a break option, for a refund of the rent it paid for the period between the break date and quarter end where there was no express term in the lease obliging the landlord to give such a refund. A relevant fact was that M&S had paid a substantial sum ("the Break Sum") as a condition of the break operating, ostensibly to compensate the landlord for ending the lease early. The Court of Appeal had previously held that where there was no express term providing for repayment, no such term would be implied.
The Supreme Court's reasoning
The Court held that it is well-established law that rent is not apportionable either under case law or statute. Section 2 of the Apportionment Act 1870 provides that all rents should be considered as accruing from day to day, meaning that rent payable in arrears may be apportioned but rents payable in advance may not. This mirrors the position with forfeiture, where a landlord who forfeits a lease under which the rent is payable in advance is entitled to the payment of the whole of the rent which fell due on the quarter day preceding the forfeiture.
On this basis, it would be wrong to find that there was an intention between M&S and BNP that M&S should be refunded an apportioned part of the rent payable and paid in advance where this had not been expressly stated, particularly where they had entered into a full and professionally drafted lease with the benefit of legal advice.
M&S argued that, had it paid the Break Sum due under the break clause before the quarter date of 25 December 2011 (being the quarter date prior to the break date of 24 January 2012), it would have fulfilled all of the break conditions so that it could have been known at that date that the lease would come to an end before the next quarter date of 25 March 2012. As the break was 'bound' to operate, it therefore would only have needed to pay an apportioned amount of the rent due on 25 December 2011 up to 24 January 2012 and not the full quarter's rent to 24 March 2012. Commercial common sense dictated that it should be in the same position whether it paid the Break Sum before or after 25 December 2011. This argument was rejected.
What this means
The lesson is clear: if tenants want to secure an apportionment, they should make this an express term of their break option. Anything less than an express term is likely to fail.
Without an express apportionment clause, tenants with breaks conditional on rent payments being up to date as at the break date should pay the full preceding quarter's rent in advance of the break date to ensure that the break operates.
This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.