Property Solicitors Suffolk – Break clauses

Kerry Addison

‘Many leases of commercial premises contain break clauses. These give the tenant the opportunity to end the lease on a certain date or dates. Usually these break clauses require relevant conditions to be complied with first. Failing to comply with those conditions can mean that the attempt to break the lease is ineffective and a business may find they are left paying rent for premises they no longer need.

One of the most common and problematic conditions is that the rent should be paid up to date at the date the lease should come to an end, not just when the notice is served.

For many businesses who pay their rent quarterly this has meant paying rent for a time period past the date they will be in occupation. A tenant can recover any overpaid rent where the lease expressly provides for this. In these circumstances the requirement to pay a whole quarters rent becomes nothing more than a minor cash flow issue. Complying with a condition that the rent shall not be in arrears at the break date has always been more of an issue if such a provision is not contained in the lease.

A recent High Court decision in the case of Marks and Spencer PLC v BNP Paribas Securities Services Trust Company (Jersey) Ltd and another has given an opportunity for some tenants who do not have an express refund clause to seek a refund of overpaid rent.

In this case Marks and Spencer were invoiced by their landlord up to the Break date which fell within a rent quarter. As was usual practice they paid the rent up to the quarter date under the terms of the lease to ensure they were not in arrears on the relevant date. As the rent was over £900,000 per year plus vat the overpayment was a considerable sum Marks and Spencer then asked for this overpayment to be refunded and BNP refused.

The parties eventually ended up in court and the Judge implied a term into the lease that the rent paid past the break date of the lease should be refunded to Marks and Spencer

The decision does not mean that every tenant whose lease does not contain an express refund of rent clause will be able to argue that such a term should be implied into their lease as every case will be decided on its own facts and more importantly on the exact wording of the lease but it is potentially a move towards taking a reasonable approach on  an issue that many tenants (although probably not landlords) have found unfair.’

Kerry Addison is a property solicitor at Barker Gotelee, solicitors in Suffolk

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