Supreme Court decision will disappoint occupiers
At the end of last year, the Supreme Court delivered its much anticipated decision in the Marks and Spencer Plc v BNP Paribas Services Trust Company (Jersey) Limited case, and it’s not good news for occupiers.
In 2011, M&S served break notices to terminate its sub-leases at The Point, Paddington. Following service of the notices M&S paid its December quarter’s rent in full as its break clauses did not allow for apportionment of the rent due up to the break date (break clauses rarely allow for this as rent is generally paid quarterly in advance). The sub-leases were successfully brought to an end a month later.
M&S subsequently submitted a claim to its landlord for £1.1 million, in respect of a refund of rent, service charge and other sums it had paid in advance. The landlord refused to pay.
In an important decision the Supreme Court conclusively confirmed the law on this point and it is this: where a break clause in a lease does not contain a clause which expressly entitles the tenant to a refund of any sums paid in advance, such sums will not be recoverable by the tenant. This principle will also apply to refunds of rents paid in advance where any lease is determined early, for example following damage by insured or uninsured risks.
No doubt landlords will breathe a huge sigh of relief at this Judgment. But what should occupiers do to protect themselves?
Now more than ever it is vital to carefully negotiate the terms of any break right prior to completing any new lease, even though this may be the last thing you are thinking about when taking on new premises. A carefully drafted apportionment clause should be included (for both the break clause and any other early termination provisions) so that any sums paid in advance can be reclaimed and, as further protection, break dates should ideally be agreed to fall on a quarter day, though this still would not assist in repayment of service charge and insurance which are typically paid annually.
When taking assignment of an existing lease you should ask your solicitor to review the terms of any break clause and early termination provisions so you are fully informed of the cost of bringing the lease to an end. Above all, get advice early so that you are not faced with nasty surprises should circumstances change and you want to leave the premises earlier than the term end.
If you would like more information on how this latest Supreme Court decision could impact you and your business, please contact Vanessa Laundon. Click here to download and print a copy of this update.