When can you recover rent paid following a break?

The Property Litigation Team at The Wilkes Partnership regularly advise both landlords and tenants in relation to break clauses. Often that advice centres on whether or not a tenant has complied with all conditions to which the break notice is subject. Victoria Khandker looks at an unexpected decision, in which the High Court has held that, in the absence of a term to the contrary, tenants can now seek to recover part of any rent paid in advance, which relates to a period following the break, once that break has occurred.

There has been a line of case law which made it clear that, in order to satisfy a break clause which was conditional on payment of all rents due, and where the break date was not the day before a rent payment day, a tenant would always have to pay a full quarters rent in advance of that break date, even where the break date meant that the lease would be terminated mid-quarter. No subsequent apportionment would be permitted, unless the lease set out otherwise.

In the recent Chancery case of Marks and Spencer PLC v BNP Paribas Securities Services Trust Company (Jersey) Limited and BNP Paribas Securities Services Trust Company Limited [2013] EWHC 1279 (Ch) there was a tenancy of four floors of office space in ‘The Point’, Paddington. In order for M&S to bring its tenancy to an end in January 2012 by exercising a break clause, it was required to pay in full both the December quarter rent and a ‘break fee’ equivalent to one year’s rent. In spite of the fact that the lease did not expressly allow M&S to recover any refund of the rent for the remainder of the quarter which fell after the break date, the Court held that such a term would be implied into the lease as “an eminently reasonable term” and therefore that M&S was entitled to repayment from its landlord, BNP, of rent and other charges paid in advance (including service charges, insurance and car parking rents), for the remainder of the quarter.

This is the first time a Court has implied such a term into a lease. However, each case will always turn on its own facts, and it was very important in this case that the tenant had paid a premium for early termination of the lease. It appeared therefore that the parties had considered what compensation the landlord should be entitled to in such a situation, and therefore that it was probably not entitled to a further sum by way of overpayments. Additionally, there was wording in the lease in this case, such as reference to the rent being paid in instalments, which may also have tipped the balance in M&S’s favour.

Victoria Khandker points out that “This is only a first instance decision and as such is not binding on other Courts. It is not clear at present if the case is being appealed but it appears unlikely. The key thing to remember is, despite this decision, that where a break is conditional a tenant should still always pay the full quarter’s rent in advance without deduction, and attempt to recover any overpayment thereafter, failing which the break notice may fail completely. There is no guarantee a refund will be received, but this is always going to be secondary to effecting the break properly.”

The Property Litigation Team at the Wilkes Partnership is experienced in advising on all issues relating to break clauses for both landlords and tenants. If you would like to discuss any of these issues further please contact Victoria Khandker (0121 710 5843) or Carl Csukas (0121 710 5842) who will be happy to assist.