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Can’t catch a break – break clause case set for appeal

You may remember that, in an unexpected decision back in May, the High Court ruled that a tenant, M&S, was entitled to a repayment from its former landlord of approximately £1.1m of rent and other charges paid in advance, following the exercise of a break option part way through the quarter.  In an unsurprising twist to the story, M&S’s landlord has been granted leave to appeal and a date has been set for the showdown in the Court of Appeal in March 2014.

By way of reminder, the facts of the case revolved around M&S’s leases of four floors in ‘The Point’, a high-end office building overlooking the Paddington Basin. M&S wished to bring the leases to an end in January 2012 and exercised break options in order to do so. The breaks were conditional on payment of the full December quarter’s rent along with a “break fee” equivalent to one year’s rent. At the break date M&S had met these conditions and the leases were determined. M&S then sought to recover a refund of the rent and other charges relating to the period of the December quarter which fell after the break date. The Court held that although the leases did not provide for such a refund, it was “eminently reasonable” that this should be implied into the lease particularly given that the landlord had been compensated by a “break fee”.

The decision has meant that landlords must be alert to the possibility that, where a break has been exercised in the middle of a quarter, tenants may seek to recover the “overpaid” rent and other charges, even where no such recovery is expressly provided for by the terms of the lease.

Will tenants’ hopes of a break on break clauses be dashed on appeal? Watch this space ….

Marks and Spencer PLC v BNP Paribas Securities Services Trust Company (Jersey) Limited and BNP Paribas Securities Services Trust Company Limited [2013] EWHC 1279 (Ch)