Supreme Court decision on break rights and refunds of rent for Tenants

The Supreme Court has recently issued its eagerly anticipated decision in Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd and another [2015] UKSC 72, and has dismissed the tenant’s appeal of a Court of Appeal decision by deciding in favour of the landlord.

The main issue in the case concerned the fact that the tenant had exercised a break clause, terminating the lease early and sought refunds of advance payments it had made in respect of rent, service charge, car parking and insurance charges, relating to the period after the break date. The High Court settled the issue of repayment of service charge. Before the Court of Appeal, the tenant was seeking repayment of rent, insurance charge and the car parking fee.

The Supreme Court concurred with the Court of Appeal and decided a term could not be implied into the lease, which entitled the tenant to a refund of the rent, insurance charges and the car parking fee, paid in advance, pursuant to the express terms of the lease. The lease had been negotiated based on an understanding that rent payable in advance was not apportionable. Therefore, the tenant’s argument, that a term should be implied into the lease, that the rent should be apportioned, if the lease was prematurely determined by the operation of the break clause, was rejected.

In the earlier Court of Appeal case of Ellis v Rowbotham [1900] 1 QB 740, it was held that the Apportionment Act 1870 did not apply to rents payable in advance, only to those payable in arrears. Lord Neuberger provided the leading judgment in the Marks and Spencer case and approved the decision in Ellis v Rowbotham.

Whilst the judgment appears to be unfavourable to tenants, it does provide certainty for both parties, as the Supreme Court has demonstrated that it will not interfere with the terms agreed between the parties, where there is a commercial contract.

It is advisable for tenants to deal with apportionments of rent paid in advance, by the inclusion of express terms in the lease to that effect. Furthermore, where a tenant’s break date does not coincide with a quarter date, tenants should exercise caution, in paying an apportioned rent for the period in between, as it is yet to be determined by the courts whether that would be considered a compliance with the lease.

If you would like any further information about this, or any other property issue, please contact Stephen Brower – Head of Property, Hayley Cloherty – Associate or a member of the Edwin Coe Property team.

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