In December 2015, after years of legal wrangling, the retail giant finally lost its battle with its former landlord regarding £1.1 m of overpaid rent.
Marks and Spencer had occupied four floors at The Point, Paddington, London, a Grade A office building owned by BNP Paribas and another. The lease was for a fixed term expiring February 2018 with rent payable in advance on usual quarter days. Marks & Spencer successfully exercised their right to determine the lease under the break clause on 24th January 2012 after paying a full quarter’s rent on 25th Dec 2011. The tenant then tried to recover the apportioned rent from 24th January to 24th March 2012.
The break contained two preconditions: i) payment of break premium equivalent to one year’s rent and ii) on the break date there were no arrears of basic rent. There was no express obligation for the landlord to repay rent paid for a period after the break.
Initially, the High Court decided that the tenant was entitled to refund. However, the Supreme Court finally affirmed the Court of Appeal’s decision and dismissed the appeal by Marks and Spencer. In brief, the court decided that the lease was between commercial, represented parties who would have expressed a term, that the leases included other express obligations of the same nature of the implied term (which would sit uneasily with those provisions) and that the law in relation to apportionment clearly excludes rent payable in advance.
So what does this mean for tenants and landlords? Tenants can no longer rely on an expectation of fairness and assume that a landlord will provide a refund for rent paid for a period after the termination of the lease, unless the lease expressly requires that landlord to make a refund.
In practice, it is likely that rather than risk a break being challenged by a landlord, tenants will just incur the loss of rent for the period. Therefore tenants entering into a new lease will need to ensure that the termination date is on the last day of the quarter or if not, that there is an express provision within the lease for a refund.