Break Clauses and Rent Refunds in Commercial Property Leases: Update

In a landmark decision the Supreme Court has recently ruled in favour of BNP Paribas Securities Services Trust (“BNP”) in its long-running dispute with its former tenant, Marks & Spencer (“M&S”), concerning whether or not M&S was entitled to recover rent that it had paid in respect of the balance of the rent quarter which followed the break date in its lease.

The Court of Appeal held last year that, given the absence of an express provision in the lease allowing M&S to claim a refund of rent paid beyond the break date, no such clause should be implied into the lease. The decision reversed the first-instance decision of the High Court in 2013, which found in favour of M&S. The Supreme Court has now upheld the Court of Appeal’s decision and unanimously rejected M&S’ argument that there should be an implied obligation entitling M&S to a reimbursement.

Whilst this case gives certainty on the point, it is undeniable that it can be particularly harsh for tenants in situations where their break date falls on, or shortly after, a rent payment date (traditionally one of the four quarter days, being 25 March, 24 June, 29 September and 25 December) and it is a condition of the exercise of the tenant’s break that all rent that has fallen due on the break date has been paid in full.

The lesson is clear – if a tenant wants to ensure that it does not have to be responsible for rent payments beyond its break date, it must make this an express term of the break option and cannot rely on the contract being silent on the point. 

Beyond the scope of break clauses in leases, this verdict is likely to have wider implications for contracts in general in that courts will be reluctant to imply terms into contracts unless it is a matter of commercial necessity.

Please note that this information is provided for general knowledge only and therefore specific advice should be sought for individual cases.

For further information, please contact Philip Mundy on pmundy@glovers.co.uk