No money back, no guarantee…

Wednesday 21 May 2014

In the recent case of Marks & Spencer Plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2014], the Court of Appeal has just made a ruling that may leave commercial tenants feeling short-changed.

The claim arose following the successful exercise by M&S of the break options in leases of an office block in Paddington. The substantive argument was whether M&S was entitled to repayment of rent for the remainder of the quarter after the break date. Repayment had been refused by the landlord (BNP Paribas) despite the fact that M&S had already paid a substantial premium to break the leases – equivalent to approximately one year’s rent.

Judgment

The Court of Appeal refused to imply a term into the leases that would enable M&S to a refund of rent paid in advance and which related to a period after the break date.

It was held that if the parties had intended that the ‘overpaid’ rent was to be refunded, they would (or ought to!) have included an express term to that effect within the leases.

Best Practice

In light of the Court of Appeal decision, the following must be borne in mind:

• If exercising a break, always pay rent in full, even if the landlord hasn’t invoiced for the full quarter (or other period). A substantial break ‘premium’ does not detract from the rent obligations under the lease and so any apportionments are made at the tenant’s peril.
• Ensure that the lease reflects the parties’ intentions – if a landlord wishes to allow for the apportionment of rent upon the exercise of a break, ensure that an express term is negotiated and included within the lease.
• Check that the break notice strictly complies with the break clause and that all preconditions have been satisfied. Even minor irregularities can render a break notice inoperable.
• Consider the terms of a break clause early so that the parties have time to take advice and ensure compliance.
• Allow plenty of time for delivery by the prescribed method of service, in order to avoid unforeseen delays (such as a postal strike or problems with the fax machine).
• Make sure that you know the identity of the party to be served. Check HM Land Registry and Companies House to ascertain the landlord’s details in good time.