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 [2014] 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 Appeal.

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 break. 

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.

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