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Update: The Supreme Court rejects Marks and Spencer’s refund policy
Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Limited [2015] UKSC 72
In a long awaited judgment, handed down on 2 December 2015, the Supreme Court has given a definitive answer to the question of whether a tenant is entitled to claim an apportioned sum of rent from his landlord following the exercise of a break notice in the middle of a quarter.
The basic facts of the case were as follows. Marks and Spencer wanted to terminate the lease of their head office in Paddington. They were entitled to do so by giving their landlord, BNP Paribas, 6 months’ notice to determine the lease on 24 January 2012. A break notice was served on BNP, but the lease provided it would only be effective if there were no arrears of rent owing to the landlord on the break date. That required Marks and Spencer to make two payments to BNP: (i) rent of £309,172.25 plus VAT that fell due on 25 December 2011 (for the period 25/12/2011 – 24/03/2012) and (ii) a break premium of £919,800.
The rent was paid shortly before 25 December 2011 and the premium was paid on 18 January 2012. The break notice was effective as a result and the lease determined on the break date, 24 January 2012. Marks and Spencer then went on to claim a pro-rata refund of rent from BNP in respect of the period from the break date to 24 March 2012. Specifically, Marks and Spencer claimed that the lease should be treated as having an implied term for reimbursement of apportioned rent. BNP disputed that any refund was due. At first instance, the High Court agreed with Marks and Spencer, but the Court of Appeal did not (you can find our analysis of the appeal judgment here: http://www.pglaw.co.uk/break-notices-can-implied/).
Marks and Spencer then appealed to the Supreme Court. The key issue to be resolved was this: can a tenant claim a sum of apportioned rent from its landlord following the determination of his lease mid-quarter, even if there is no express term in the lease to that effect?
The answer to that question is no, save for exceptional circumstances. Giving the leading judgment of the Court, Lord Neuberger reviewed the authorities on implied terms in contracts and found that there was no basis on which to imply a provision for apportionment into the Marks and Spencer lease. To do so would have gone against the long-established principle that rent is not apportionable at common law. Nor could it be said that an implied provision for apportionment was necessary in order for the lease to make commercial sense.
So the general principle is clear: a tenant will not be entitled to an apportionment of rent paid to the landlord in advance following the early determination of the lease.
Needless to say, future tenants involved in negotiations over break clauses will, following this decision, want to give special attention to timing: do the provisions for service of the break notice mean that it will expire before or after a rent payment day? Equally, landlords will want to ensure that there is no room for uncertainty about the obligations that the tenant must perform in order for the break notice to be effective.
More generally, this decision can perhaps be seen as a further example of the literal approach to the interpretation of contracts that we saw in an earlier judgment from the Supreme Court this year - Arnold v Britton [2015] UKSC 36. It is vitally important that all contracting parties, not just landlords and tenants, should check and make sure that their intentions are properly recorded as part of the written agreement. Trying to convince the Court that an implied term exists is now even more likely to be an uphill struggle.
