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This Isn't Just Any Lease Dispute...

This Isn't Just Any Lease Dispute...

M&S are famous for their impressive ad breaks, but it is landlords who will be pleased to see the outcome of their high profile “break” with BNP Paribas.  Yesterday the UK Supreme Court confirmed that, in the absence of an express term in the contract, a tenant is not entitled to a refund of rent paid for a period after a break date.

In the case of Marks and Spencer PLC v BNP Paribas, M&S tried to recover rent from the landlord after they had brought the lease to an end by serving a break notice.  M&S had paid a full quarter’s rent that was due on 25 December 2011 and the lease ended on 24 January 2012.  M&S tried to claim back the rent for the remaining part of the quarter.

The lease was silent on whether the tenant would be entitled to a refund of the rent.  M&S argued that it was an “implied” term of the contract that they should get that money back.

Decision

The court recognised the force in M&S’s arguments but ultimately ruled that it was not entitled to a refund.  The court’s main findings were:

  • That the case law (dating back to 1900) as well as legislation from 1870 did not allow for rent that had been paid in advance to be “apportioned” on a day to day basis;
  • The court could not imply a term into the lease against the backdrop of a clear principle;
  • The lease was a detailed document between substantial and experienced parties, drafted by expert solicitors;
  • Whilst this could lead to unfairness, the result was not commercially absurd.

What does this mean for landlords?

Unless the lease allows for it expressly, landlords should be rejecting claims after a break date for a refund of rent paid in advance.

What does this mean for tenants?

If there is a break clause in the lease, tenants should be insisting that contract provides for a refund, or trying to limit their exposure ensuring that the break date is on the day before the next rent payment date.

Tenants should not be tempted to simply pay a reduced rent before the break date – as that could invalidate the break notice.  Advice should be sought before doing so.
 
Stephen Farrell
Senior Solicitor
 
Alan McMillan
Partner

LChalmers