The Supreme Court has unanimously dismissed an appeal by a tenant who contended that a term should be implied into its lease by which the tenant would be entitled to recoup 'overpaid' sums after exercising its break option.
Effect of the decision
The Supreme Court's decision reinforces best practice:
- If parties want to be able to claim back 'overpaid sums', then they should ensure the lease includes apportionment or recoup provisions that entitle them to do so.
- Parties exercising break options should follow the terms of the break option to the letter.
- If you are in any doubt as to what is required to exercise a break option and/or your rights after the break date, seek specialist legal advice.
- The tenant (T) had a break option conditional upon there being no arrears of rent as at the break date and payment of a sum equivalent to 1 year's rent.
- The break date was in the middle of a quarter.
- T paid the full quarter's rent as it fell due and the break payment in time to operate the break option.
- T sought repayment of the 'overpayment' element of the quarter's rent for the period after the break date.
The Supreme Court's decision
The Supreme Court decided that a term entitling T to recoup the 'overpayment' should not be implied into the lease:
- The judicial approach to the implication of contractual terms may be summarised as follows:
- A term will only be implied if it satisfies the test of business necessity or it is so obvious it goes without saying. It would be unusual for only one of these requirements to be met.
- The actual intention of the parties is not critical to the determination of whether a term should be implied. The key question is what would reasonable people in the position of the parties have agreed at the time they were contracting.
- The term to be implied should either be fair or a term that the parties would have agreed had it been suggested to them.
- The lease should be considered in the context of the common law and statutory authorities on apportionment of rents, which provide that rents payable in advance cannot be apportioned. Against that background, it would be wrong to attribute to the landlord and tenant an intention that the tenant should be entitled to recoup 'overpaid' sums in what was a full lease that had been professionally drafted and negotiated between experienced operators.
- The anomalies in the working of the lease that the tenant sought to invoke to support its case for an implied term did not establish that the lease was either unworkable or that the result was commercially or otherwise absurd.
Marks and Spencer plc v (1) BNP Paribas Securities Services Trust Company (Jersey) Limited (2) BNP Paribas Securities Services Trust Company Limited  UKSC 72