The High Court’s decision in the recent Marks & Spencer case against BNP Paribas Securities Services has opened the door to claims by former tenants for reimbursement of “overpayments” that were a condition of the exercise of a break clause.

The High Court’s decision in the recent Marks & Spencer case against BNP Paribas Securities Services has opened the door to claims by former tenants for reimbursement of “overpayments” that were a condition of the exercise of a break clause.

The retailer emerged victorious in the case for the over payment of rent last week. Break notices are an often litigated topic, particularly in a difficult commercial market because of the consequences on either the landlord or the tenant of an effective or ineffective break. Many break clauses are conditional, based upon the performance by the tenant of certain obligations on or before the break date. Usually it is this performance or otherwise of these conditions that leads to litigation. 

However, this case concerned a refund claimed after the lease was terminated in accordance with the break clause and all the relevant conditions had been satisfied. 

M&S had paid a full quarter’s rent in advance of the break date to ensure compliance with the break provisions. However, the lease was due to determine only a month into that quarter. Following the effective break of the lease, M&S claimed recovery of the rent that related to the period after the break date using three different arguments. Two of those arguments failed but they were successful in convincing Mr Justice Morgan that a term should be implied into the lease allowing recovery of the part of the rent paid that related to the period after the break date, on the basis that a reasonable person reading the lease would expect it.  The implication of such a term represents a significant shift in favour of tenants.

If such a term could now generally be implied into all commercial leases with break clauses, then many former tenants could claim for reimbursement in a similar way from landlords (not just in relation to basic rent but also service charge and insurance payments as well). 

However, as the decision turned in a large part upon the specific wording of the reservation of the rent clause in the lease, it may only be applied in cases where the wording of the lease is the same or substantially similar. Furthermore, it is uncertain what part the requirement to pay a break premium to the landlord played in the judge’s findings and that may be discussed in the event that this decision is appealed.

  • Chris Alexander is a solicitor in the property litigation department at SA Law

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