Breaking 'Break' News
The long awaited (by property lawyers at least) Supreme Court decision in Marks and Spencer plc v BNP Paribas is out and there’s no early Christmas present for tenants.
For those who need reminding of the facts of the case, M&S had exercised their right to break their lease mid way through the lease term. The break clause in question stipulated that there should be no arrears of rent on the break date (24 January 2012), and also required the tenant to pay a premium of a year’s rent as a condition precedent. The tenant paid the premium as well as the full quarter’s rent due on 25 December 2011 (in addition to service charge, insurance and car parking rents, all of which related to periods after the break date).
M&S sought reimbursement of what they regarded as the overpaid rent from 24 January to 24 March (and one or two other elements). In doing so, they argued that a term should be implied into their lease that the overpaid rent should be reimbursed.
Following successful termination of the lease on the break date, the tenant issued proceedings to recover the amounts “overpaid”. It was accepted, in the absence of express terms to that effect, that the lease was subject to an implied term allowing recovery of the balance in such circumstances.
This decision was then reversed on appeal before M&S took it to the Supreme Court.
Unfortunately for M&S, the Supreme Court decided that the term could not be implied on the basis that a term could only be implied when it is strictly necessary for business efficacy and here it was not. The lease was clear and worked even if it appeared to be unfair. The Court analysed just when a term could be implied into a contract. They said that the meaning of a contract had to be established first before looking to see if any term needed to be implied and if so what.
The Court said it was necessary to look at the law as at the date of the contract when forming a view of the meaning of the contract. In saying that, the Court looked at the question of whether section 2 of the Apportionment Act 1870 applied to rent payable in advance and confirmed, as had been the case for over 100 years, that it did not and therefore confirmed, as most property lawyers believed to be settled law, when rent is payable in advance the entirety of it is due on the first day it is due.
So far, very little, if anything, of assistance to any tenants…
However, although not strictly necessary for the decision and therefore not binding, Lord Neuberger did say that where the lease stipulated that the rent was to be paid “proportionately for any part of they year” that if it had been known that the break notice was definitely going to be effective and the lease come to an end before the rent for the quarter was due, then the tenant would have been able to pay an appropriate portion of the rent and not the entire quarter.
M&S had to pay £919,800 plus VAT to ensure the break notice was effective. If it had paid that sum before 25 December 2011, then on the date when the quarter’s rent was due, it would have been known that the lease was to come to an end on 24 January 2012 and therefore in Lord Neuberger’s view they could then have just paid one month rather than three month’s rent.
Since they did not pay the £919,800 plus VAT until after 25 December this argument was of no avail to M&S but it does give tenants paying rent in advance with an appropriately drafted lease, with break dates which do not come to an end on a quarter date, at least a glimmer of hope that they will not have to pay rent for the time then they are not in occupation after the expiry of the break notice.
However, this is a principle which remains untested and caution must be exercised. Much will depend upon the specific wording of the lease in question and for now, it is of most importance to those drafting leases that a) break dates falls at the end of a quarter to avoid these problems altogether or otherwise b) there is a suitable reimbursement clause in the lease.
