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16 June 2014

Break Clauses – “as you were”

The recent Court of Appeal decision in Marks & Spencer plc -v- BNP Paribas Securities Services Trust Company (Jersey) Limited and Another [2014] EWCA C(iv) 603 is a blow to tenants.

The case concerned repayment of rent for the period after the operation of a break clause in a lease.  To recap, the first decision in 2013 (commented on one of our earlier enews editions) arose as the result of the exercise by the tenant (“M&S”) of a right to break in a lease, and the subsequent claim by M&S that it was entitled to repayment of rent paid in advance from the break date to the next quarter day.

M&S was successful in the 2013 case, as it convinced the Judge that, whilst the lease did not contain an express term that rent paid in advance (for the period after the exercise of the break) should be repaid, such a term should be implied.

The Judge implied the term on the basis that it was necessary to give business efficacy to the lease.  The earlier decision was give short shrift in the Court of Appeal and Lady Justice Arden, giving the main judgment, stated that: “… it would have been obvious to the parties before they signed up to the lease that there was a possibility that rent would have to be paid on the last quarter day in full for a period which went beyond the break date.  They would therefore have made some provision for this case.”

Commentary

The decision, whilst not welcomed by tenants, gives certainty in this area and it is clear that tenants and their advisors must now specifically include a provision in the break clause for repayment of any rent paid in advance for the period from the break date, if that is what is intended.