The Supreme Court’s ruling yesterday in the landmark break clause case involving Marks & Spencer was long-awaited and will certainly be of great interest to landlords and tenants, writes Chris Perrin, property litigation lawyer at the Manchester office of law firm Irwin Mitchell.
The high street retailer was claiming the rent back from its landlord BNP Paribas Securities Services after it exercised a break clause on 24 January 2012 to end a lease on its premises at The Point in Paddington.
M&S had paid rent quarterly up to 23 March 2012 and sought to recover a refund for the two months period when it was not using the building.
Prior to the controversial High Court decision in May 2013 it had long been accepted that, without a clear and express apportionment provision the tenant is not entitled to a refund. However, the High Court implied a term into the lease allowing Marks & Spencer to reclaim the rent.
This decision was overturned in the Court of Appeal in May last year and was referred to the Supreme Court for a hearing on 7 October where yesterday it handed down its judgment and unanimously dismissed the appeal.
The ruling is significant because if Marks & Spencer had been successful in this case, it was expected to have led to calls from a significant number of tenants for a portion of rent and services charges to be refunded, even if the lease failed to provide an express provision for this.
The judgment however provided a clear approach in relation to the issue of implied contractual terms with the Supreme Court stating that a ‘term will only be implied if it satisfies the test of business necessity or it is so obvious that it goes without saying.’
Whilst the Supreme Court’s decision may further depress tenants who have been caught out by the complexities of operating break clauses, the good news is that the decision provides landlords and tenants (and indeed their lawyers) with certainty that the lease is the contract between the parties.
The decision emphasises the need for tenants to be properly advised on their break options and the importance of ensuring at the outset of lease negotiations that any intended refunds are expressly provided for.