Some further thoughts about whether a tenant is entitled to a rent refund after validly operating a conditional break clause


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You should read this article if you are a commercial UK landlord or tenant, or agent for either.

After a line of cases which have strictly applied break clause provisions in favour of landlords, Marks and Spencer recovered the balance of the full quarter’s rent it had paid in advance. This may have been sensibly flexible and absolutely fair, but will it generate more not less litigation?

Marks and Spencer plc v BNP Paribas Securities Services Trust Company Ltd [2013] EWHC 1279 (Ch)

What happened? 

For Marks and Spencer to effectively exercise its right to break on 24 January 2012, it had to pay the full rent for the December 2011-March 2012 quarter, plus a premium of one year’s rent. The lease having ended on 24 January 2012, Marks and Spencer sought to recover the rent it had paid for the additional two months occupation that it had not enjoyed. There was no expressed lease provision for repayment, but the court implied a term that Marks and Spencer should be repaid.

Good or bad?

It is now well established that, however unfair, a full quarter’s rent must be paid when the operation of a break clause is conditional on the tenant not being in arrears. The entitlement to a refund appeared to be decided against tenants in Quirkco Investments Limited v Aspray Transport Limited [2011] EWHC 3060 (Ch), on a strict interpretation of a tenant’s break clause.

The tenant unsuccessfully argued in that case that the landlord should not be unjustly enriched and that there had been a failure of consideration. There was no suggestion of an implied term entitling the tenant to repayment. That tenant, however, was not required to pay a premium. This appears to have been the key to Marks and Spencer’s success, because the Court decided that it could not have been intended that it would pay the additional compensation of two months’ rent over and above the one year’s rent premium.

Marks and Spencer’s Counsel, Guy Fetherstonhaugh QC, points out in this week’s Estates Gazette that, if this decision is not appealed, the law concerning break clauses is still confused. That is because the express terms of Marks and Spencer’s break clause were not strictly applied. Where, to break a lease, tenants have to pay a full quarter’s rent and a premium, would it not make sense to pay just up to the break date? Recent cases say otherwise.

Key messages

1. The implied term will not always be available, it will depend upon the lease drafting and the conditions of the break

2. A tenant currently negotiating the insertion of a break clause should ensure that the break date is the day before a break payment date and seek an express term providing for a rebate of “overpaid” sums.

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