In yet another high profile case regarding break clauses, the Court of Appeal in Marks and Spencer PLC v BNP Paribas Securities Services Trust Company (Jersey) Ltd  EWCA Civ 603, has overturned the High Court's decision and confirmed that it was not appropriate to imply a term into M&S's lease which required the Landlord to refund the balance of the last quarter's rent paid in advance after M&S exercised its break clause. We previously reported on the first instance decision which also sets out the facts and the various other points discussed at first instance. The landlord, BNP Paribas, appealed arguing that without an express obligation to do so, it was not required to refund the rent paid by M&S which related to the period after the lease had come to an end. To put the case into context the sums at stake were allegedly in excess of £1 million pounds.
Central to the decision was the fact that the parties would have known that if the break was exercised, the lease would end part way through a quarter with the possibility that rent would have to be paid on the last quarter day in full for a period which went beyond the break date and that the clause didn't deal with this situation. As the break clause dealt with other consequences of termination i.e. return of documents etc to the landlord, the judge commented that the parties could have very easily included an express clause requiring the landlord to repay any rent (or other charges) which related to a period after the break date, but failed to do so.
The judgment will be music to Landlords' ears, but yet another blow to those tenants who have break clauses with pre-conditions to satisfy and where, as part of the process of satisfying these, rent has to be paid to a date beyond the break date. Interestingly however the Court of Appeal does suggest that an apportioned payment of the last quarter's rent is acceptable and will not invalidate a break if payment of rent is the only (or only still to be performed) precondition to the break clause such that the parties can be sure that (if the rent is duly paid) the lease will actually end on the break date. This was not the case for M&S as it also had to pay a break premium to the landlord which it had not paid when the last quarter's rent fell due. Whether or not M&S could have avoided the issue by paying the break premium before the last quarter's rent payment fell due is unclear, but the judgment appears to suggest that then paying an apportioned rent is unlikely to have invalidated the break and M&S may not have been out of pocket.
Notwithstanding this suggestion in the judgment, apportioning rent on exercise of a break where there are other pre-conditions to satisfy (even if a tenant believes it has already satisfied the other conditions) remains high risk, with a simpler solution (albeit not available to tenants who have already entered into their leases) being to ensure that tenants always ,when negotiating the lease break terms, include an express obligation on the landlord to refund any sums paid by the tenant in advance but which relate to a period after the lease is ended. That having been said, tenants also cannot now be sure that they are not in fact overpaying if they pay an unapportioned quarter, if such payment is the only remaining precondition for the break. The court's decision makes trying to recover a deliberate (but cautious) overpayment much harder, in the absence of any express term entitling such a refund.