Leases – it’s not just any old break clause, it’s an M&S break clause

Off my usual topic of business rates thanks to this interesting high court ruling that has big implications for the UK property sector.

One of the more common aspects of commercial leases today is the incorporation of break clauses, mainly tenant only – but sometimes landlord only or mutual.

You might think that if a break clause is exercised, the tenant pays up to that point and then both sides move on.  However, in the world of Landlord &Tenant things are never as simple as they first seem!

The recent case of M&S Plc V BNP Paribas (2014) attempted to clarify matters once and for all.  Essentially the break date fell between the normal quarter days and the rent as usual was paid quarterly in advance.

The break clause was exercised and deemed to have been successfully served in order to terminate the lease. M&S then sought recovery of the overpayment which amounted to a sum of around

£1.147m. The landlord eventually refused to pay back the overpayment, hence the court proceedings.

The trial judge having considered that the break had been exercised successfully agreed that the overpayment should be re-paid, concluding that this was implied within the lease even if it was not incorporated as a specific covenant.

The landlord promptly appealed the case to the Court of Appeal who concluded that you could not imply such a term and the rent was not refundable. The message therefore being that if the tenant wants any such overpayment refunded, this needs to be spelt out within the lease.

You may think matters would rest there but no, the case was referred to the Supreme Court on 7th October – the final ruling is still pending so watch this space as the roller coaster may not yet have come to rest!

As a general rule of thumb I often find that the law seldom follows a common sense approach and I would therefore fully expect the Supreme Court ruling to be upheld – but then again???

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