Court confirms part of quarter's rent paid in advance recoverable by tenant on exercise of a break option

In an unexpected decision, the High Court has ruled that a tenant, M&S, is entitled to a repayment from its former landlord, BNP Paribas Securities Services Trust Company, of approximately £1.1m of rent and other charges paid in advance, following the exercise of a break option part way through the quarter.

This decision will come as a surprise to both landlords and tenants (and their lawyers) as other recent cases have concluded that tenants must pay the full quarter's rent where a break date falls part way through a quarter and the rent is payable quarterly in advance.  The M&S case will be particularly important where the operation of a break is conditional upon payment of rents because failure to pay the full quarter is likely to render the break ineffective.  If correctly decided, this case will enable tenants to recover a proportion of the rent paid to the landlord.

The facts of the case revolved around a tenancy of four floors of office space in 'The Point', Paddington.  To bring the tenancy to an end in January 2012, M&S was required to pay both the December quarter's rent in full and a "break fee" equivalent to one year's rent.  Although the lease did not expressly allow the tenant any refund of rent for the period after the break date, the Court ruled that such a term was "eminently reasonable" and should be implied into the lease.

Also relevant to the argument was the "break fee".  The Court considered that the parties had applied their minds to the appropriate compensation payable to the landlord if the break was exercised, and therefore it was unlikely that the parties had intended the landlord to be entitled to additional compensation in the form of the overpaid rent and other charges.  The Court was able to reconcile previous case law quite simply on the ground that the implied term argument had not been argued in those cases. Given how reluctant the courts usually are to imply terms into detailed leases, the failure to make such arguments in these previous cases was not particularly surprising.

Importantly though, the decision in this case does not alter the fact that, where the break is conditional, usually the full quarter's rent must still be paid in advance if the break is to be effective (even if part of it can later be recovered).  

The M&S decision may cause landlords and tenants to review similar situations where tenants had been dissuaded from pursuing recovery of overpayments by earlier case law.  We understand that the landlord intends to seek permission to appeal.  Therefore, as with so many updates on break clause decisions in recent years, this one too must end with …"watch this space".

Marks and Spencer PLC v BNP Paribas Securities Services Trust Company (Jersey) Limited and BNP Paribas Securities Services Trust Company Limited [2013] EWHC 1279 (Ch)