Most of us mere mortals would expect a break clause to mean what it says on the tin. If a tenant gives notice to its landlord to terminate its lease on the date that was agreed when the terms were negotiated, you might expect as a tenant that you would only need to pay rent up to that date.
Well, that was what the case of Marks and Spencer Plc versus BNP Paribas Securities Services Trust Company (Jersey) Limited and Another 2013 has also decided, but this decision is subject to an appeal to the Court of Appeal.
There are probably many commercial property leases where there is a tenant break clause and that clause can only be exercised if certain conditions are complied with. Although this case involved a break clause that was subject to conditions, the case went to Court because M & S, the tenant paid their full quarter’s rent in advance on the December quarter day even though the notice that had been given to the landlords meant the lease to an end 18 February in the following year and they claimed that they had overpaid their landlord and claimed back the overpayment.
Unfortunately, there were no provisions in the lease dealing with any overpayment and statute (the Apportionments Act 1870) did not assist their argument for a refund.
It was left to His Honour Mr Justice Morgan to decide that there was an implied term of the lease entitling M & S to the return of rent for the period after the break date.
Many tenants have been faced with a similar predicament when it comes to exercising a break clause. In particular where there is a condition that the rent should be paid up to a break date. The dilemma is; does the tenant make the payment for the whole quarter’s rent (as did M & S) or, does the tenant just make a payment for the proportionate amount from the rent payment date until the break date.
The prudent non-adverse tenant would probably make the full quarter’s payment and seek to recover the overpayment so not as to prejudice the right to exercise the break clause because of the condition that the rent has to be paid, as most leases require rent to be paid quarterly in advance.
There are a few simple ways to avoid facing such a dilemma:-
Do not accept any conditionality to a tenant only break clause.
Have the break date fall on the day before the next rent payment is due or.
Include an express provision in the lease that requires the landlord to repay (promptly or interest will be charged) any payment that is made in advance for the period after the break date.
As this case is due to go to the Court of Appeal (it may not if the parties settle), we will need to see if those who do have leases with break dates in them but do not have the suggested provisions as mentioned above, are they able to rely on the implied terms as decided upon in the M & S case.