10 Lords a-Leaping

It's day 10 of our blog series: The House of Lords was once the court of last resort for most cases heard in the UK. However, in 2009 those Law Lords leapt into the 21st Century and rebranded themselves as the Supreme Court of Justice.

For the property world one of the most significant Supreme Court cases in recent years was Marks and Spencer plc v BNP Paribas.  To re-cap, the case concerned a break clause in the retail tenant's lease.  The rent was payable on the usual quarter days, but the break date was mid-quarter.

The tenant paid their full quarter's rent in advance of the break date, and the case concerned whether the tenant was entitled to receive a refund of the overpayment of rent paid for the period after the break date when the tenant was no longer in occupation.

This case was of such importance that the matter was taken to the Supreme Court.  On the way up through the court system, at one stage it was held that the tenant was entitled to recover the overpayment.  This was fantastic news for tenants who would otherwise lose a full quarter's rent even though they were only in occupation for a part of that quarter.  That position was, however, overturned.

The Supreme Court reconsidered the issue. In brief they concluded that a term should not be implied into a lease entitling a tenant to a refund if not expressly provided for.  Given that decision, what should tenants do when taking on a lease:

1. Consider whether there is a break clause;

2. If there is a break clause consider whether the break date coincides with a quarter date (or any other date on which rent/other sums are payable);

3. If the break date does not coincide with the payment date, ensure that the lease includes an express term that the tenant is entitled to receive a refund of any payments made in advance which cover the period after the break date;

4. If the break clause is conditional on all rents being paid (which is often the case) the tenant must pay all sums due for the full period in advance of the break date.  If the tenant attempts to apply the apportionment prior to the break date this may invalidate the break which could be catastrophic for the tenant.

Should you have any queries regarding this process please contact us.