Advance rental payment and break clauses

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Legal experts Taylor Wessing  report on a important commercial real estate landmark ruling on the advance payment of rent pursuant to a break clause.

M&S not entitled to cashback on checkout – Marks and Spencer v BNP Paribas

02-12-2015

Crucial Supreme Court ruling confirms landlords can keep rent paid in advance where tenants break midway through a rental period.

After years of uncertainty, the Supreme Court has now provided substantive guidance concerning the apportionment of rent paid by a tenant in advance for a period after a break date. M&S, the former tenant under the relevant leases, was unsuccessful in its appeal. Consequently, its former landlord, BNP Paribas, will now be entitled to keep all of the rent paid to it by M&S, including the sums it was paid in advance in respect of the period after M&S’s break date.

Previous decisions

When this case originally came before the High Court, the Judge held that M&S was entitled to a refund of apportioned rent, on the basis that a term should be implied into the leases to allow M&S to recover the “overpayments”. Many leases provide for breaks midway through a rental period and the Judgment suggested that the Court would be sympathetic to tenants who were otherwise obliged to pay rent for no occupational benefit. However, the Court of Appeal overturned that decision, holding that tenants breaking leases partway through a rental period would not be entitled to a refund unless the lease contained express wording providing for this. The Court stressed that it would be important to maintain a high level of loyalty to the parties’ agreement, read against the admissible background.

The Supreme Court’s Judgment

The Supreme Court upheld the Court of Appeal’s decision and decided that an implied term to allow M&S to recover the rent should not be included in the leases. It based its conclusions on the following findings:

  • The parties were both “substantial and experienced“ and had been professionally advised by solicitors. Nevertheless, there was no term in the relevant leases that would enable any apportionment of rent to be effective, even though such a term would have been effective if it had been expressly included.
  • The leases also contained detailed provisions concerning the payment of money, both as rent and pursuant to the break options. This suggested that the parties intentions were clearly documented in the leases.
  • The Court confirmed that rent paid in advance was not apportionable, approving historic case law on the point, dating back to 1900.
  • While the effect of the decision could “lead to potential unfairness“, the result could not be said to be commercially absurd, particularly as it was up to the tenant to decide whether to exercise the break. There was no justification to argue that the contract was “unworkable“.
  • On a separate point, the Court approved the finding that service charges paid in advance should be apportioned, as these constituted payments for services rather than rent.

The full article can be viewed at

http://united-kingdom.taylorwessing.com/en/marks-and-spencer-v-bnp-paribas-m-s-not-entitled-to-cashback-on-checkout

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