Break Clauses in Leases – Latest developments…

Posted 11/08/2014

It has been accepted law for some time that where a tenant exercises a right to break a lease in the middle of a rental period, any rent paid by the tenant in advance to the landlord for the period after the break date can only be recovered from the landlord where the lease expressly states that the tenant is entitled to do so.

Despite this, subsequent rulings had given courts discretion in situations where tenants found themselves unable to recover monies paid in advance, due to their leases not containing express provisions to allow them to do so. Where both the landlord and the tenant intended that the lease was to contain such a provision, but the lease remained silent, a court could imply a term into the lease to the effect that rent would be recoverable.

This inevitably gave rise to uncertainty amongst parties as to where they stood and dissatisfaction that the court was effectively left to try and work out what exactly each party intended when it entered into a lease.

This very issue was explored recently by the Court of Appeal in the case of Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Limited and another [2014] EWCA Civ 603. The tenant had exercised a break clause, ending the lease early, and sought recovery of part of payments it had made in advance towards rent. The tenant argued that it should only pay for what it received – payments in respect of the period after the break date should therefore be refunded.

The High Court had originally found in favour of the tenant and ordered the landlord to pay back the sums covering the period after the break date. On appeal by the landlord, the Court of Appeal found that it was not appropriate to imply such a term into the lease entitling the tenant to a refund of the rent paid in advance. In giving Judgment, the court reiterated that only where there is an express provision in the lease should a tenant be entitled to expect a refund of any rental sums paid in advance.

In handing down Judgment, the Court of Appeal has attempted to offer a degree of clarity. Time will tell whether the position changes once again.

On a practical level therefore, it would seem that when negotiating leases, solicitors acting for a tenant should strive to provide clarity and certainty and ensure that the break date falls on the last day of a rent period and that the lease expressly provides for repayment of rent from the break date. Solicitors acting for a landlord, on the other hand, will inevitably want the lease to remain silent on this issue as ambiguity should now work in the landlord’s favour.