Supreme ambiguity: What should tenants do after the Supreme Court’s decision in M&S -v- BNP Paribas?

M&S broke its lease on 24 January 2012, having paid both a break penalty and the full quarter’s rent due up to 24 March. The question the Supreme Court had to answer was whether M&S could claim a refund of the rent paid for the period after the break date (i.e. 25 January to 24 March).

The accepted position until this case arose was that the landlord would always be entitled to a full quarter of rent unless the lease expressly says that the tenant can claim a refund.

Surprisingly, at first instance, Morgan J decided that the right to a refund could be implied. The Supreme Court has overturned this and emphasised that terms can only be implied into leases where it is “necessary”.  M&S therefore was not entitled to a refund.  I suspect they added a very significant legal bill to their losses as well.

So where does this leave tenants looking to exercise break options? Is it ever ok for a tenant to just pay a proportionate part of the rent due?

Lord Neuberger, the president of the Supreme Court, says that a proportionate part can be paid if, aside from payment of rent, you are certain that the break will otherwise be effective (i.e. there are no other conditions).

Given this comment, tenants will perhaps be disappointed that no right-minded legal adviser would ever recommend making a proportionate payment in these circumstances, for two reasons:

• Lord Neuberger’s comment is “obiter”. In other words, it was not a necessary part of his reasoning to reach the decision and therefore is not a binding part of the judgment. It also seems to ignore previous cases on the point.
• Lord Neuberger’s view is nonsensical, in that the amount of rent required to be paid will vary, depending on whether there are other break conditions. A break subject to a vacant possession condition would therefore, according to Lord Neuberger, require more rent to be paid.

Practical points:

The law of breaking leases is a minefield for tenants. Sensible tenants should:

• avoid break conditions wherever possible; and
• make sure there is provision for reimbursement of any overpaid rent expressly written into the lease.

In the meantime, landlords will continue to watch breaks like vultures, waiting to capitalise on that unpaid penny of service charge that will keep the tenant on the hook for another 10 years…

For more information please contact Richard Cressall on 0113 227 0237 or at richard.cressall@gordonsllp.com