No Express Right to Refund upon Exercise of Break Clause

The Court of Appeal, in thecase of Marks and Spencer plc v BNP Paribas Securities ServicesTrust Company (Jersey) Limited and another [2014] EWCA Civ603, decided that Marks & Spencer (the Tenant) was notentitled to a refund of rent, insurance rent and the car parkingcharge, relating to the period after the break, upon the exerciseof a break clause in absence of an express provision. Thiscase, although bad news for Tenants, will provide certainty in ahighly litigated area.

In this case, Marks &Spencer exercised the break clause in the Lease which brought theLease to an end early. The break date fell between two rentpayment dates and Marks & Spencer had previously paid the rentfor 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 thebreak date until the next rent payment date. There was noexpress clause in the Lease which entitled them to a repayment uponthe exercise of the break clause. The Landlord agreed toapportion the service charge before the case reached the Court ofAppeal.

Marks & Spencer arguedthat a term should be implied into the Lease which entitled them toan apportioned refund. Their main arguments were that theLandlord refunded the service charge for the period after the breakdate and that they should only pay for what they actually receiveunder the Lease.

The High Court held that Marks& Spencer was entitled to a refund of the rent, insurance rentand car parking charge. The Landlord then appealed to theCourt of Appeal, which overturned the High Court decision andrefused to imply a term into the lease.

The Court commented that, ifthe Landlord and Tenant had wanted a provision for repayment in thebreak clause then they could have put this in expressly at the timeof drafting; therefore the parties entered into the Lease on thebasis that Marks & Spencer would lose the rent, insurance rentand car parking charge upon the exercise of thebreak.

The consequence of thisdecision is that if the rent payment dates under a Lease fellquarterly on the 1 January and 1 April and the break date fell on31 January, the Tenant would lose the rent and any other paymentsmade in respect of February and March unless there was an expressclause to the contrary.

In light of this case,Landlords and Tenants should consider what will happen to the rentand other payments upon the exercise of a break clause if the breakdate falls between two rent payment dates. Tenants shouldensure that any break clause provides for an apportioned refund ofrent and all other payments upon the exercise of the clause.Alternatively, the break clause could be drafted so that the breakdate falls on the last day of the quarter. This will providecertainty for both parties.

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.