On 2 December 2015, the Supreme Court delivered its much anticipated judgment in Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd and another [2015] UKSC 72. Following on from our discussions in two previous editions of the Bulletin, the Supreme Court upheld the Court of Appeal’s decision that it was not appropriate to imply a term into the lease entitling the tenant to a refund of the rents it had paid in advance in respect of the period after the break date.

Prior to the High Court decision in this case, it was well established law that if the break date was in the middle of a rental period, a tenant would not be entitled to recover any rent paid in advance in respect of the period after the break date unless the lease made express provision for this.

However, the tenant successfully argued before the High Court that there should be an implied term in its lease giving rise to a right to recover rents paid in advance following the exercise of a break clause in respect of the period between the break date and the end of the relevant quarter. The judge was influenced by the fact that the tenant was required to pay a substantial premium as a condition of it exercising the break option. He felt this was a clear indication that the parties had not intended for the landlord to also reap the benefit of the rents paid in respect of the period after the break date.

The landlord appealed and the Court of Appeal unanimously overturned the first instance decision, rejecting the suggestion that the right to recover the apportioned part of the quarter’s rent should be implied into the lease.

Decision

The Supreme Court has also now found in favour of the landlord, dismissing the tenant’s appeal of the Court of Appeal’s decision. It upheld the Court of Appeal’s decision that it was not appropriate to imply a term into the lease entitling the tenant to a refund of the rents it had paid in advance on the grounds that such a term was not necessary to make the contract workable.

The Supreme Court took the opportunity to clarify the law on implied terms – essentially, in order for a term to be implied into a contract, it must be either necessary for business efficacy or be so obvious that it goes without saying. The Supreme Court placed significance in this case on the fact that the terms of the lease were very full, professionally drafted and had been carefully considered between the parties. Lord Neuberger, giving the leading judgment, also confirmed that he was satisfied that the long-standing Court of Appeal decision in Ellis v Rowbotham [1900] that the Apportionment Act 1870 does not apply to rent payable in advance should be approved. 

Conclusion

The judgment will be welcomed by landlords who will be once more reassured that, save in very exceptional circumstances (for example, where the contract could not work or would lead to an absurdity), a tenant will only be entitled to a refund of rents paid in advance in respect of a period after a break date if the lease expressly makes provision for this.

As a result of this decision, prudent tenants will continue to ensure that an express right to recover the apportioned part of the quarter’s rent is included in a break clause in a new lease (although landlords in a strong bargaining position may well seek to resist this). Alternatively, tenants should try to agree a break date falling immediately before the rent payment date to avoid an overpayment. For older leases which do not include such provisions, this judgment provides some certainty for the parties and should deter tenants from raising such disputes in the future.