In Marks and Spencer Plc v BNP Paribas Securities Services Trust Company (Jersey) Limited and another [2014] EWCA Civ 603 the Court of Appeal overturned the first instance decision of Morgan J ([2013] EWHC 1279 Ch). The case concerned rent paid up in advance of a break clause being activated and whether the lessor had to repay rent in respect of the period after the break date. At first instance, Morgan J held that there was an implied term in the lease that the rent paid up in advance could be apportioned; the tenant would be repaid that portion of the rent in respect of the period falling after the break date. The Court of Appeal held that there was no such implied term: the landlord would be entitled to keep all of the rent paid up in advance, even if a full quarter’s rent had to be paid very shortly before the lease came to an end because of the break clause.

The case concerned four sub-leases between the parties for separate floors of an office block in Paddington, London. Rent was payable in advance on the usual quarter days. The reddendum in clause 2 stated that the basic rent should be paid ‘yearly and proportionately for any part of a year by equal quarterly instalments on the Quarter Days’. The break clause allowed the lessee to terminate the lease on 24 January 2012. To activate the break clause, the lessee had to give six months’ notice, there had to be no arrears of rent or VAT on rent, and a premium had to be paid. There was no express term entitling the lessee to be repaid any sum by way of rent that he or she had paid in excess of what was due for periods prior to the break date.

M&S complied with the conditions of the break clause, paying the rent for the quarter on 25 December 2011. The lease came to an end on 24 January 2012. M&S demanded repayment of the rent paid in advance for the period from 25 January to 24 March 2012 (the broken period). At first instance Morgan J held that there was an implied term that the lessor would repay the rent paid in respect of the broken period.

Arden LJ, with whom Jackson and Fulford LJJ agreed, held that there was no such implied term. Following A.G. of Belize v Belize Telecom [2009] 1 WLR 1988, the starting point was that if there was no express term, none would be implied. The court will not imply a term as a matter of interpretation unless it is necessary that the agreement should contain such a term to achieve the parties’ express agreement, purposively construed against the admissible background.

Rent is not simply a payment to the lessor for the use and occupation of the premises: it is also used as a yardstick for compensating a party for some loss that he incurs by entering into a lease. When the parties signed up to the lease it would have been obvious that rent would have to be paid on the last quarter day in full for a period that went beyond the break date. The parties could easily have added a clause to the effect that the lessor was to repay any rent paid for the broken period. The point that such a clause could have been included expressly so easily might even be a factor against its implication.

Practitioners should consider the following points:

  • When drafting a break clause, consider what is to happen to rent and other payments made before the lease comes to an end. Is the lessor going to repay them on an apportionment basis? If so, include this expressly in the lease.
  • It was re-emphasised that Belize will not allow courts to imply terms simply because they are ‘reasonable’. If a term is not included in an agreement, the starting point is that the term should not be implied. Courts will be increasingly loyal to the parties’ agreement.
  • Given this, each lease should be considered separately. Consider the requirements and effect of each break clause carefully.