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25 July 2013

Tenant’s refund for rent following the break date

Comment on the recent case of Marks and Spencer plc v BNP Paribas Securities Services Trust Company Ltd [2013] EWHC 1279 (Ch) on break clauses and rent refunds.

The tenant in this case (Marks and Spencer) exercised a break clause in its lease part-way through the quarter.  The provisions of the break clause required Marks and Spencer to pay: (1) a penalty fine equal to one year’s rent; and (2) advanced rent in respect of the full quarter.

It had been established law that, if a break date is exercised in the middle of a rental period, any rent paid in respect of the period after the break date would not be recoverable by the tenant in the absence of an express provision in the lease.

The lease in this case did not contain an express provision entitling Marks and Spencer to a refund of the rent from the break date to the end of the quarter.  Despite this, earlier this year the High Court held that Marks and Spencer was entitled to such a refund and ordered BNP to repay the rent attributable to the period following the break date.

In making its decision, the Court implied a term into the lease that Marks and Spencer would be granted a refund of rent post-dating the break.  In its judgment, the Court explained that, had the break clause not been operated, the rent would have been payable until the term expired (which was part way through a quarter) and rent would not have been due for any period after that date.  The Court therefore questioned why a break situation should be any different.

However, this case, rather than setting a blanket precedent, arguably turns on the facts.  It seems that of particular importance in this case was the fact that Marks and Spencer also had to pay a hefty break penalty, and it was therefore unlikely, in the Court’s view, that the parties would have anticipated that the Landlord would also retain the rent from the break date.

Commentary

Landlords and tenants should ensure that their intentions are expressly recorded in the lease so as to avoid the need for Courts to imply terms into the agreement.  Tenants entering into leases should therefore seek an express term entitling them to a refund of overpaid rent when exercising a break right.

By way of brief reminder, tenants should be clear that if break provisions require the payment in advance of the full quarter’s rent, then this should be complied with, even if the intention is to seek a refund on this amount subsequently.  Failing to comply with the break provisions will mean that the break has not been validly exercised.

Tenants who have either recently exercised a break or are considering doing so should take legal advice if they are unsure of their position.