Not a great break clause for Marks and Spencer

Year Published: 2015

The Supreme Court has recently released its judgment in relation to the dispute between Marks and Spencer PLC (M&S) v BNP Paribas Securities Services Trust Company (Jersey) Limited (Paribas).

This case related to M&S exercising a break clause in a lease. For those of you not familiar with leases, this is where a tenant can serve notice to end the lease early.

In order to use a break clause there will usually be conditions attached to such a right with strict time limits and notice procedures to comply with. It is usual that one such condition is that there are no breaches of the lease by the tenant e.g. there should be no rent arrears.

This can cause a problem for tenants as they may have to pay a quarters rent, but exercise of the break clause will result in the lease ending before the end of the quarter period paid for, resulting in an overpayment of rent.

This is exactly what happened with M&S.

M&S exercised a break clause but in order to give a valid break notice had to pay a quarters rent. Accordingly there was rent paid for a period after the date the lease was broken. In essence M&S had paid for a period in which they were not occupying the premises. In addition a premium was payable for exercising the break clause. This was a significant sum, over £1m.

M&S therefore brought a claim for what in effect was an overpayment of rent.

However there was no express term in the lease providing for repayment. M&S sought to argue that there was an implied term in the lease that there should be a repayment.

The Supreme Court upheld the Court of Appeal’s decision that where there is no express term providing for repayment, no such term would be implied.

So if a tenant who has negotiated a break clause to a lease also wants to ensure that any rent should be apportioned i.e. so they are not paying for rent beyond the date they break the lease, then they must also negotiate this as an express term of the lease.

Furthermore if there is no express apportionment clause in the lease given the Supreme Court’s decision, it is highly unlikely that an implied clause will apply and therefore in order to exercise any break clause it is essential that all rent due is up-to-date otherwise the tenant risks the break notice being invalid. This could have severe financial ramifications if there is a high rent or long term and the tenant may still be bound by the terms of the lease.

For more information regarding break clause disputes or any other dispute resolution matters, please contact our Dispute Resolution team on 0161 475 7676.

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