Supreme Court ruling relating to break clauses is welcome news for landlords

The Supreme Court has today unanimously dismissed Marks and Spencer's appeal in M&S v BNP Paribas [2015] UKSC 72, holding that a term requiring a landlord to repay rent paid in advance, in respect of a period beyond the date of termination following the exercise of a break clause, would not be implied into the lease in question.

Facts

In this case, having served notice on the landlord pursuant to a break clause to determine the lease on 24 January 2012, the tenant paid to the landlord on or around 25 December 2011 the rent due for the full December 2011 to March 2012 quarter. About a week prior to the break date, the tenant paid to the landlord an additional specified sum required as a condition of the break. The break conditions having been satisfied, the lease term ended on 24 January 2012.The tenant then sought repayment of the rent and other sums paid in advance, in so far as these related to the period after the break date.

At first instance, the High Court considered that it was reasonable for an implied term for repayment (as contended for by the tenant) to be read into the lease and held that the tenant was able to reclaim the rent paid in advance for the period beyond the termination of the lease on the break date. Reversing the High Court ruling, the Court of Appeal held that no such term could be implied and that the tenant was not entitled to repayment of rent attributable to the post-break period.

The Supreme Court has today dismissed the tenants' appeal.

The decision

• The Supreme Court held that a term requiring a landlord to repay rent paid in advance, in respect of a period beyond the date of termination following the exercise of a break clause, would not be implied into the lease in question.
• In terms of the law relating to implied terms, the court held that:
  • The test for an implication of a term remains whether or not it is necessary to give business efficacy to the contract;
  • The phrase "necessary" in this context means whether or not the contract would lack commercial or practical coherence without the implied term;
  • A term will not be implied into a contract where it "lies uneasily" with the express terms of the contract.
• The law on apportionment was confirmed, such that rent payable in advance is not apportionable under the Apportionment Act 1870.

Comment

The Supreme Court decision preserves and restates fundamental principles of property law in relation to break clauses. This clear statement of the law and the certainty it brings will be welcomed by the landlord community, as it will prevent tenant challenge to the many breaks that have been exercised over past few years.