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by January 5, 2016Published on
TENANTS HAVE NO IMPLIED RIGHT TO REIMBURSEMENT OF RENT ON EXERCISE OF A BREAK RIGHT
News follows a recent Supreme Court Decision
The Supreme Court Decision
In the recent case of Marks and Spencer plc v. BNP Paribas Securities Trust Company (Jersey) Limited and another  the tenant exercised its break right, bringing its lease to an early end. The tenant sought a refund of parts of payments it had made in advance by way of rent, service charge, car parking licence fees and insurance charges for the period after the break date. The issue of refund of service charge was considered separately in an earlier High Court decision and is not commented on further within this briefing. The tenant’s lease did not contain any express provision obliging the landlord to pay a refund.
The landlord had raised an invoice for the rent and other sums due on the December 2011 quarterly payment date that, rather than being for the rent and other sums due for the whole quarter (as provided for by the lease) was for a lesser period from and including the quarter day to the break date of 24 January 2012. The tenant nevertheless paid the full quarterly amount because, notwithstanding the landlord’s invoice, the lease required the rent to be paid quarterly in advance and the break right was conditional on there being no arrears of rent on the break date. Should the tenant have failed to pay the full quarter’s payment, in light of other recent case law its purported exercise of the break right may have failed.
On the tenant’s request for a refund, the Supreme Court found in favour of the landlord. It decided that, in the absence of any express provision, a term could not be implied into the lease requiring the landlord to refund any proportion of rent, car parking licence fees and insurance charges paid in advance by the tenant for the period after the break date. This was so notwithstanding both that the landlord’s invoice was for a lesser period than a quarter and that a judge in the case acknowledged that it would seem reasonable and equitable that the landlord should refund an apportioned sum to the tenant.
Implications of the Decision
The decision is yet another instance involving a dispute between a landlord and a tenant in which the courts have found in favour of the landlord when interpreting break provisions. It highlights another reason that tenants should seek appropriate legal advice when negotiating the terms of a lease and certainly before entering into it, particularly when it is of a high value or for a lengthy term.
Previous decisions have highlighted the risks to a tenant of agreeing to a break right that is subject to conditions that must be satisfied and the risks to a tenant of failing to exercise a break right strictly in accordance with its terms. In each case, tenants have sought to exercise their break right thinking they would be able to get out of a lease early, but have remained tied in for the duration of the term following a challenge by their landlord. In many cases this has resulted in serious financial consequences.
Break rights can be very contentious then and it is strongly advisable that tenants seek appropriate legal advice on their terms before agreeing to them and again at the point they seek to exercise them. A tenant’s solicitor should be able to advise on the potential implications of any conditions a landlord is seeking to attach to a break right, the inclusion or implications of failure to include appropriate refund provisions for sums paid in advance and the means of exercising a break right.
For further advise and information, please contact Chris Anderson, Partner and Head of Property on 0191 255 0222 or at firstname.lastname@example.org
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