No Express Right to Refund upon Exercise of Break Clause
The Court of Appeal, in the
case of Marks and Spencer plc v BNP Paribas Securities Services
Trust Company (Jersey) Limited and another  EWCA Civ
603, decided that Marks & Spencer (the Tenant) was not
entitled to a refund of rent, insurance rent and the car parking
charge, relating to the period after the break, upon the exercise
of a break clause in absence of an express provision. This
case, although bad news for Tenants, will provide certainty in a
highly litigated area.
In this case, Marks &
Spencer exercised the break clause in the Lease which brought the
Lease to an end early. The break date fell between two rent
payment dates and Marks & Spencer had previously paid the rent
for the whole quarter in advance. Upon exercising the break,
they requested an apportioned refund of rent, insurance rent,
service charge and car parking charge for the period after the
break date until the next rent payment date. There was no
express clause in the Lease which entitled them to a repayment upon
the exercise of the break clause. The Landlord agreed to
apportion the service charge before the case reached the Court of
Marks & Spencer argued
that a term should be implied into the Lease which entitled them to
an apportioned refund. Their main arguments were that the
Landlord refunded the service charge for the period after the break
date and that they should only pay for what they actually receive
under the Lease.
The High Court held that Marks
& Spencer was entitled to a refund of the rent, insurance rent
and car parking charge. The Landlord then appealed to the
Court of Appeal, which overturned the High Court decision and
refused to imply a term into the lease.
The Court commented that, if
the Landlord and Tenant had wanted a provision for repayment in the
break clause then they could have put this in expressly at the time
of drafting; therefore the parties entered into the Lease on the
basis that Marks & Spencer would lose the rent, insurance rent
and car parking charge upon the exercise of the
The consequence of this
decision is that if the rent payment dates under a Lease fell
quarterly on the 1 January and 1 April and the break date fell on
31 January, the Tenant would lose the rent and any other payments
made in respect of February and March unless there was an express
clause to the contrary.
In light of this case,
Landlords and Tenants should consider what will happen to the rent
and other payments upon the exercise of a break clause if the break
date falls between two rent payment dates. Tenants should
ensure that any break clause provides for an apportioned refund of
rent and all other payments upon the exercise of the clause.
Alternatively, the break clause could be drafted so that the break
date falls on the last day of the quarter. This will provide
certainty for both parties.
Posted on: 04/06/2014
This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.
Back to News articles