The recent trend in Court decisions on conditional break clauses has been in favour of landlords but we have just seen a significant case decided in favour of tenants so that after successfully exercising a conditional break Marks and Spencer (the tenant) were entitled to a refund of the proportion of the rent (paid in advance) for the period after the break date. Will this affect all conditional breaks and will tenants start claiming refunds for previous breaks?

Why was the tenant entitled to a refund? The High Court implied a term into Marks and Spencer’s lease that the rent was to be refunded even though there was no express clause and certainly no settled law to that effect.

Why was the term implied? The High Court said this obligation to refund was “obviously what the parties meant”. Terms cannot be implied into leases just because they are reasonable but the factors that influenced the judge were -

  • The lease specified the yearly rent and stated that for a period of less than a year a proportion was due
  • The lease provided for the rent to be paid in instalments
  • The lease provided for the tenant to pay the landlord an amount equal to a year’s rent in order to exercise the break. The judge said that the parties had clearly applied their minds to the question of what compensation the landlord was entitled to if the break right was exercised.

Will this same implied term apply to all leases? As ever all cases turn on the individual facts and so it is never possible to be certain. The existence of the break penalty payment was clearly significant. If a similar lease without this wording came before the Courts it might not be as easy for the judge to imply the refund term as the parties would not have so ‘obviously’ considered the position. What we can expect is that tenants will now try very hard to get refunds in the future and possibly even bring claims for refunds under past breaks.

What about a break clause that is not conditional on the payment of rent? Well, according to the judge in this case, the tenant can, as a result of this decision apportion the rent due for the period up to the break date and pay that apportioned amount only. The decision did not go as far as to say that where the break was only conditional on the payment of rent the tenant could apportion on the quarter day and still break and it would be a brave tenant who would try that.

Will this be overturned on appeal? We will have to wait and see but not much gets to the Court of Appeal these days in this area of the law so we may have to live with the series of High Court decisions.