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No refund of rent for M&S 14 May 2014

The Court of Appeal has (as I predicted!!) today overturned the first instance decision in Marks and Spencer PLC v BNP Paribas Securities Services Trust Company (Jersey) Ltd [2014] EWCA Civ 603.  Reversing Morgan J’s first instance decision, the Court of Appeal ruled that it was not appropriate to imply a term into the lease that M&S was entitled to a refund of the balance of the quarter’s rent paid in advance when a break clause was exercised.

Arden LJ said:

“I have come to a different conclusion from the judge for the primary reason that in my judgment the lease, read as a whole against the relevant background, would not reasonably be understood to include such a term, and thus the test for an implied term is not met.

“In my judgment, when all the circumstances are considered, the correct inference to draw is that the parties proceeded on the basis that the loss from a payment of rent for the broken period should lie where it fell.  Thus no term for repayment is implied.”

This is obviously bad news for M&S, and perhaps for justice (and I suspect, perhaps also for M&S’s solicitors’ insurers).  But it is good news for legal consistency.

So it really does look as if there is no solution for tenants who wish to exercise a break clause and yet who need to ensure that all rent to date is paid on the quarter in which the break date falls.  Traditionally it has been the custom for a break date to fall on a rent payment date.  If a lease containing a break clause is being granted today, the tenant will normally require the break date to be the last day of the month or the quarter (depending on whether rent is payable monthly or quarterly), not the first.  It is also usual (or at least not uncommon) for tenants to request the inclusion of a provision under which the landlord repays any rent relating to the period after the break date.  It is difficult for the landlord to resist such a provision, if it is requested.  It might have been unusual five or ten years ago, but solicitors acting for tenants should be aware of this point by now.

Scorecard

In my blog article entitled “Five important landlord and tenant appeal decisions awaited” on 12 February 2014, I predicted the results of five cases.  I did not fare too badly, although not as well as I had hoped:

Jervis v Pillar Denton Ltd (whether administrators have to pay rent for the time they use a property on a day by day basis) – I failed to anticipate the Court of Appeal’s decision that the landlords would triumph. 0/10.

Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd (implied term to repay rent after lease break) – correctly anticipated. 10/10.

Siemens Hearing Instruments Ltd v Friends Life Ltd (requirement for specific wording in a break notice) – unaccountably I said that the validity of the defective break notice would be upheld.  The Court of Appeal held it was ineffective.  What was I thinking?  0/10.

Barclays Wealth Trustees (Jersey) Ltd v Erimus Housing Ltd (whether a tenant was occupying a property as tenant at will or periodic tenancy) – I correctly predicted that the occupation was as tenant at will. 10/10.

Peel Land and Property (Ports No 3) Ltd v TS Sheerness Steel Ltd (whether the plant and machinery in a steelworks constituted tenants’ fixtures) – I correctly predicted that the main decision would not be overturned although the landlords succeeded on their appeal in relation to the interpretation of the alterations covenant in the lease.  This part of the decision may yet be appealed.  Let’s say 5/10 for now.

So – somewhere around 25/50 at present.  As some of the cases may find their way to the Supreme Court, I am hopeful that the final score will be rather more impressive.

UPDATE ON 4 DECEMBER 2014 – On 11 November 2014 the Supreme Court granted leave to appeal the Court of Appeal decision in Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd.

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