Will rent refunds finally lose their appeal?

Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd and another[2014] EWCA Civ 603

In the latest twist in this high profile saga, M&S has now been granted permission by the Supreme Court to appeal against the Court of Appeal's decision that it was not entitled to a refund of rent falling due after the break date. This is an important point for landlords and tenants alike, and all eyes will be on the Supreme Court awaiting the final verdict.

The High Court and the Court of Appeal

M&S had served notices to determine four leases pursuant to break options allowing for termination on specified break dates. As the break dates fell partway through a quarter, M&S paid in full, and then sought a refund after the break date. The landlord refused on the basis that the full quarter's rent was due on the quarter day and there was no obligation in the leases for it to refund any sums for periods after the break date. As the sum at stake was approximately £1,100,000, M&S issued proceedings. The High Court found in its favour and ordered the landlord to refund the money.

The landlord appealed and the Court of Appeal overturned the decision, finding in the landlord's favour that a refund was not necessary. In the absence of an express obligation to refund, the Court of Appeal focused on implied terms, and what a party must show to successfully claim that a term should be included in a lease. In the judgment the key question was whether or not it would be necessary in order to achieve the objectives of the parties to imply a term that an overpayment of rent would be refunded.

The Court of Appeal held that in the circumstances it was not necessary to imply terms into M&S's leases. The parties could have included express wording to deal with any repayment and it would have been evident when the lease was entered into that the tenant might have to overpay if it chose to exercise its break options.

The Court of Appeal refused permission to appeal, but the Supreme Court has agreed to hear the case.

Supreme intervention

The Supreme Court's decision to hear M&S' appeal gives an interesting signal. The scope for addressing wider issues relating to implying terms into commercial leases may have piqued the Supreme Court's interest. The Supreme Court will only grant permission to hear an appeal where the issue before them is "a point of law of general public importance".

No date has yet been set for the appeal. Both landlords and tenants will be eager to hear the final word on whether a tenant who breaks a lease mid-quarter will be entitled to a refund without this being expressly provided for by the lease. Refunds may have looked like a tantalising possibility to some occupiers following M&S's original success, so tenants in particular will be keen to find out whether the Supreme Court's decision could entitle them to bring a claim. Similarly landlords who have been paid a full quarter's rent will be watching closely to see if they could be required to pay it back.