The Supreme Court handed down its Judgment in the case of Marks and Spencer Plc v BNP Paribas Securities Services Trust Company & Ors on 2 December 2015. This is important news for landlords and tenants alike when negotiating the terms of leases and exercising break clauses.
The brief facts of the case are that a lease had been granted for a term expiring on 2 February 2018, with rent being payable in advance on the usual quarter days. The tenant gave a break notice to end the lease on 24 January 2012.
The terms of the break clause included a stipulation that a break notice would only have effect if on the break date there were no arrears of the basic rent or VAT thereon. The tenant paid the full quarter’s rent falling due on 25 December 2011 (i.e. for the period up to and including the 24 March 2012) and thereafter sought to recover the rent for the period from 24 January 2012 to 24 March 2012 (namely the period after the lease had ended pursuant to the break clause).
Lord Neuberger considered the position regarding the repayment of rent paid in advance following a forfeiture of a lease, and confirmed that it is a very established rule that a landlord who forfeits a lease under which rent is payable in advance, is entitled to payment of the whole of the rent which fell due on the quarter day preceding the forfeiture.
This is an important reminder to landlords when considering when to forfeit a tenant’s lease.
The Lords unanimously decided that the tenant was not entitled to the repayment of its rent for the period after the break date. In other words, the landlord is entitled to retain the sums, notwithstanding that the lease was at an end and he was free to re-let the premises.
Lord Neuberger stated that save in a very clear case indeed, it would be wrong to attribute to a landlord and a tenant, particularly when they have entered into a full and professionally drafted lease, an intention that the tenant should receive an apportioned part of the rent payable and paid in advance, when the non-apportionability of such rent has been so long and clearly established. Save in very exceptional circumstances (e.g. where the contract could not work or would lead to an absurdity) express words would be needed before it would be right to imply a term to the contrary.
Careful consideration should be given, particularly by tenants, when negotiating the terms of a break clause as to when the break date should be and whether this should be the last day of a rental period. Conversely, landlords may want an earlier break date and for rent not to be apportioned.
It is good news for landlords for now as they can continue to retain rent for the periods after a break date. It is however anticipated that the terms of a break clause will be a hot point for negotiations.