Landlords across the country will have welcomed the much-anticipated Supreme Court decision this week involving M&S .
The issue before the Court was whether a term could be implied in a lease to the effect that, where a tenant exercises its rights to end the lease, it should be entitled to a refund of the rent and other payments paid in advance in respect of the period after the break date.
The Supreme Court has unanimously restored the widely-accepted view that, in the absence of an express provision in the lease, a tenant should not be entitled to such a refund (save in very exceptional circumstances).
M&S held leases of four floors of offices in London. The leases contained break clauses which could end the leases on 24 January 2012. To determine the leases, M&S were required to provide six months’ notice and comply with the conditions attached to the break, which were:
- on the break date there were to be no arrears of the basic rent; and
- to make a payment of £919,800 plus VAT on or before the break date
On giving the required notice and making the payment (including a full quarter’s rent due on the quarter day before the break date) the break notice was effective and the leases ended on 24 January 2012.
Subsequently, M&S sought to recover the rent and other payments attributable to the period between the break date and 24 March 2012. The leases did not contain an express provision entitling M&S to a refund.
At first instance, the High Court surprisingly held that M&S was entitled to a refund of the rent, the insurance charge, and the car parking fee attributable to the period after the break date, despite the fact that the leases did not contain an express provision to that effect.
The High Court decision was overturned by the Court of Appeal. The Court of Appeal ruled that it was not appropriate to imply a term into the leases that entitled M&S to a refund of the rent it had paid in advance in accordance with the express terms of the leases.
Lady Justice Arden held that if the parties had intended for a particular term to apply, they could have incorporated appropriate wording. No term for repayment could therefore be implied. It was made clear that the Court would not imply a term unless it was necessary to achieve the parties’ objective.
Supreme Court decision
In its unanimous judgment the Supreme Court upheld the decision of the Court of Appeal. The Supreme Court agreed that a term would not be implied that rent from the break date to the end of the quarter would be reimbursed. In particular it held:
“neither the common law nor statute apportions rent in advance on a time basis……Save in a very clear case indeed it would be wrong to attribute to a landlord and a tenant, particularly where they have entered into a full and professionally drafted lease, an intention that the tenant should receive an apportioned part of the rent payable and paid in advance, when the non-apportionability of such rent has been so long and clearly established”.
In giving its judgment the Supreme Court took the opportunity to clarify the law on implied terms generally, and confirmed that there is a clear, consistent, and principled approach to the law which requires that a term will only be implied if it satisfies the test of business necessity or is so obvious that ‘it goes without saying’.
In this case, an implied term was not necessary to make the contract workable or coherent. The Supreme Court stated “a term should not be implied into a detailed commercial contract merely because it appears fair or merely because one considers that the parties would have agreed it if it had been suggested to them.”
The legal battle between M&S and its former landlord BNP is now concluded, and many landlords will be breathing a sigh of relief. Not only does this case provide landlords with certainty regarding breaks which fall between rent payment dates but it has clarified the law on implied terms in any form of contract.
The decision that a tenant should not be entitled to a refund of any payments that relate to the period after the break – unless it has been expressly provided for in the lease – is both practical and pragmatic, and ensures that landlords will not face a barrage of claims from former tenants who have been eagerly awaiting the outcome of this case.
Going forward, the lesson learned is that when negotiating and agreeing the terms of a lease, the tenant should ensure that:
- the lease expressly provides for a reimbursement of rent and any other payments paid in advance from the break date to the next quarter/payment day; or
- the break date is the last day of a rental period/quarter.
 Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Limited and another