In January last year, Marks & Spencer won a landmark victory in the High Court to apportion its final rent payment when exercising a break clause. The Court of Appeal has today overturned that decision in a welcome judgment for landlords, Marks & Spencer Plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd  EWCA Civ 603.
In order for a lease break to take effect, the tenant must comply strictly with the break conditions. A standard break condition is payment of all rent up to date. Where the rent is payable quarterly in advance, this includes payment of the entire rent quarter, even if the break takes effect mid-quarter. This latest decision confirms that position.
A tenant's rent cannot be apportionable unless the lease expressly permits the tenant to apportion the rent, usually when the lease starts or ends mid-quarter. Increasing numbers of tenants exercising break rights in leases have sought to apportion their rent quarter payments due on a lease break with little success.
Marks & Spencer had entered into a 12 year lease from 2006 to 2018 of four floors of an office in Paddington with rent payable quarterly in advance. The annual rent was £919,800 plus VAT per annum. The lease included a break clause to end the lease mid-quarter in January 2012, provided the rent was paid up to date. The break clause also required payment of a break fee equal to one year's rent.
The landlord invoiced the tenant for rent only up to the break date rather than the full December quarter. However, Marks & Spencer were aware of the existing law on matter of mid-quarter breaks and, to ensure compliance with the break conditions, paid the entire quarter as well as the break fee. The break was therefore effective and Marks & Spencer subsequently issued a claim for the 'overpaid' rent.
The High Court had determined that if it was certain that the lease would end on the break date (because the whole quarter and the break fee had been paid) then it was reasonable to imply a term that the rent should subsequently be apportioned to the break date. The Court of Appeal disagreed and did not accept that such an implied term was appropriate and necessary. Marks & Spencer will not be entitled to a refund for the rent for the part of the December quarter in which they were not in occupation.
The landlord requires payment of the rent quarter in full because a break is conditional and there is no guarantee that the break will be successful. The tenant will need to weigh up the cost of paying the rent quarter in full against the cost of being tied into the lease for several more years. This scenario can be resolved when negotiating leases by including an express apportionment or 'refund' clause in the break provisions.