Commercial Leases and Break Clauses

In 2014, we reported on the Court of Appeal’s decision in the case of Marks & Spencer PLC v BNP Paribas Securities Trust Company (Jersey) Ltd (BNP Paribas). Following this, Marks & Spencer PLC were allowed by the Supreme Court to appeal the decision of the Court of Appeal to not grant them a refund of the rent they had paid past the break date of the lease.

The Supreme Court’s recent decision provides a landmark change in the drafting of break clauses in commercial leases.

To refresh; tthe tenant, Marks & Spencer PLC, exercised their right under the break clause in their lease with BNP Paribas, the landlord. In accordance with the break clause, the lease was to come to an end on 24 January 2012. Marks & Spencer PLC paid the usual quarter’s rent due on 25 December 2011 and, therefore, wanted to claim a refund for the overpayment of rent made on this date for the period 24 January 2012 to 24 March 2012 (the date of which the next quarterly payment of rent would have been due). Their appeal was denied.

It has been held by the Supreme Court that as the lease had no express term in the break clause for a refund of apportioned rent paid after the break date, and both parties had taken proper legal advice at the time of drafting the lease, then no such intention could be found between the parties, and therefore, no such term could be implied into the lease.

The decision comes as a sigh of relief for many landlords. For tenants, however, the decision is likely to impact the drafting of break clauses as they will want to include an express term providing for the refund of any rent, or other such payments (e.g. service charge), that fall after the break date if paid in advance, or to ensure the break date falls at the end of a quarterly term to avoid such overpayment.

If you require any further information on the above, please do not hesitate to contact our Commercial Property Team.

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