There has been much commentary in the property press over the last few days reporting on the eagerly anticipated outcome of BNP Paribas’ appeal against the High Court’s ruling last year that allowed M&S (BNP’s tenant) to recover £1.1m of rent and other charges after exercising their break right.
The Court of Appeal allowed the landlord’s appeal and ruled that, in the absence of an express term in the lease, there was no implied term that a landlord must refund to its tenant rent paid for the period after a break date.
What does this mean for tenants?
• The key lesson to be learned from this case is that, now more than ever, it is important for any agreement reached on the terms of a break clause to be reflected in the drafting. If the tenant requires rent paid for the period after the break to be refunded, this must be expressly provided for in the lease.
• The Court of Appeal has however agreed with the parties’ view that the tenant was entitled to a refund of any service charges paid in advance that hadn’t been spent by the landlord prior to the break date. Notwithstanding the Court’s decision on the facts of this case, tenants should ensure that the return of unspent service charge is dealt with expressly in the lease drafting for certainty.
• To exercise a break right that is conditional on rent being paid up to the break date, that still means paying the whole of the relevant quarters’ rent. If the break date is the quarter day, that does mean that the full quarter’s rent has to be paid (with no chance of a refund unless expressly provided for in the lease).
• Tenants taking new leases with break clauses should set break dates for the day before a quarter day or provide for rent post the break date to be refunded.
• Above all, tenants negotiating new leases should try to get a clear and certain right to break with minimal pre-conditions.
The Court has refused M&S permission to appeal, though it remains open for M&S to ask the Supreme Court for permission directly.