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A B C D E F G H I J K L M N O P R S T V W Y

Break Clauses in Commercial Leases: No Implied Term to Apportion Rent

Break Clauses in Commercial Leases: No Implied Term to Apportion Rent
Monday 7th December 2015

The Supreme Court has now handed down its eagerly-awaited decision in the case of Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Limited [2015].

The case concerned a break clause in a commercial lease. The Supreme Court was asked to consider whether the tenant, Marks and Spencer, was entitled to a refund of rent paid in advance where the break date in their lease did not coincide with the end of a quarter. The Supreme Court ruled unanimously that Marks and Spencer was not entitled to recover the over-paid rent.

In this case, the lease had been granted for a fixed term, and rent was payable in advance on the usual quarter days. Marks and Spencer validly exercised its right under the break clause to determine the lease on 24 January 2012, after it had paid the full quarter’s rent due on 25 December 2011. Marks and Spencer claimed that there should be an implied term written into the lease which would allow it to recover from the landlord the apportioned rent from the break date until the end of the quarter.

Accordingly, the Supreme Court was required to reconsider the law in respect of implied terms in contracts. The Court stated that a term will only be implied where it is strictly necessary for business efficacy, i.e only where, without the term, the contract would lack commercial or practical coherence. A term will not be implied if it ‘lies uneasily’ with the express terms in the contract.

The Supreme Court also confirmed that rent payable in advance is not apportionable under section 2 of the Apportionment Act 1870. Therefore, rent payable in advance can only ever be apportioned as a result of a clear and unambiguous clause to that effect in the contract. There is no doubt, however, that section 2 of the Apportionment Act applies to rent payable in arrears. 

The Supreme Court clarified that the same conclusion applied to the car park licence fee and the insurance rent paid by Marks and Spencer, but not to the service charge; in respect of the service charge, there was a specific provision in the lease which contemplated repayment.

But where a tenant has exercised its right under a break clause to determine the lease, and the break date does not coincide with the end of the quarter, can the tenant simply pay an apportioned final rental payment? Unfortunately, the Supreme Court did not answer this question, and such a scenario remains open to challenge in the future.  


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