The much-anticipated Court of Appeal decision in Marks & Spencer plc (M&S) v. BNP Paribas Securities Services Trust Company (Jersey) Limited  EWCA Civ 603 has been handed down. The controversial High Court judgment has been overturned.
M&S had exercised a break right in its lease. The break contained conditions as to payment, but did not contain an express apportionment provision (i.e. rent to be payable on a proportionate basis between a payment date and the break date).
A rent payment date occurred prior to the break and M&S paid a full quarter's rent, despite the landlord invoicing M&S on an apportioned basis from the quarter day to the break date. M&S was wise to do this to ensure that it complied with the conditions of the break to enable the break to be effective − better to have an argument about apportionment after the break than an argument about whether the lease itself has been broken. All in all, the apportioned amount was around £1.1 million. The landlord claimed its invoice was sent in error and retained the full quarter's rent. M&S applied to the High Court on the basis that the words "proportionately for any part of a year" amounted to an express apportionment term. M&S also submitted that a term should be implied whereby rent was to be apportioned and repaid for the period from the break date to the end of the quarter.
The High Court rejected the express term argument but held that an implied term did indeed exist allowing the "overpaid" amount to be returned to M&S. The decision was based on what the Court ascertained the parties' intentions to be and also accounted for the payment of a substantial break penalty − evidencing the parties' intention that the penalty should be sufficient to compensate the landlord for the break such that it should not be entitled to rent from the break date to the end of the payment period. The landlord appealed.
The Court of Appeal did not agree with the High Court and overturned the decision, concluding that, if the parties intended rent to be apportioned on a break, they could easily have expressly provided for this. This decision provides clarity and certainty. The implied term argument was novel, though it is not surprising that it has not been upheld by the Court of Appeal. The decision obviates the need for an enquiry into the intentions of the parties at the time the lease was drafted. This is always going to be a question of fact in each individual circumstance, which is in itself unsatisfactory.
Therefore, if the parties genuinely intend rent to be apportioned following a break, they should expressly provide for it. There is no better intention than an express, clearly defined, one. Tenants in particular should ensure that they demand such a provision in their leases to avoid any debate or unpleasant surprises when exercising a break.
Break clauses have been given considerable judicial attention in recent years. A tenant seeking to exercise a break should ensure that it complies with all the break conditions, including as to payments (whether demanded or not − Avocet v. Merol) and the provision of vacant possession (NYK Logistics v. Ibrend). A tenant should pay a full quarter's rent in absence of an express apportionment provision (Quirkco v. Aspray; PCE Investors v. Cancer Research UK). If the wording allows for an argument on apportionment, the tenant should have the debate after the break has occurred (as in M&S). Finally, a party seeking to exercise a break should ensure that it has complied with all the formalities of a break, even if they appear to be trivial or unnecessary (Friends Life v. Siemens Hearing Instruments).
It is therefore vital that advice is sought in good time in the event of any concern regarding the exercise of a break right. To get it wrong could mean paying out on two leases and significant time and money being spent on litigation.