Tenants Beware – Break Clause Date and Rent Refunds

In the recent case of Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Limited and another [2014] EWHC 1279 (Ch) the Court of Appeal considered whether a tenant who has exercised a break right should be refunded rent and other payments relating to the period after the break date.

Generally for a break notice to be effective, a tenant will have to ensure that the rent and other payments (eg. insurance rent, service charge, interest etc) are paid up-to-date in accordance with the terms of the lease. This may well include paying the rent and other payments in advance until the next quarter day, even if the break date falls before that time.

Some leases contain express provisions dealing with the refund of any additional payments of rent and other payments to the tenant. In limited circumstances the Courts will imply a term into a specific contract to fill a gap in a lease’s drafting.

In the recent case of Marks and Spencer plc v BNP Paribas the Court ruled:

  • Rent – as a general principle the Court did not accept that rent payments relating to the period after the break date after a successful break should be refunded to the tenant.
  • Implied terms – the Court did not consider that an implied term should be incorporated into the lease to refund any rent and other payments the tenant.
  • Insurance rent and car parking fees – the Court found no reason for these costs that related to the period after the break date to be repaid to the tenant.

It should be noted that the above is limited to the facts of the case and the outcome may differ depending on the specific terms of the lease and situation.

We recommend that a tenant should seek to negotiate that either:

  • the break date is the last day or near the end of a rent period; or
  • the lease expressly provides for a repayment of rent and any other payments to the tenant from the break date to the next payment day.

For further information and advice in connection with drafting a lease or exercising a break clause please get in touch.