Break clauses & rent refunds: M&S case brings cheer for landlords

Commercial landlords had an early Christmas present from the Supreme Court when Marks & Spencer’s appeal for a refund of £1 million in rent fell at the final hurdle. Brady Solicitors’ commercial and mixed-use specialists explain.

This case concerned four floors of London office space rented by M&S. It began back in 2011 when M&S exercised a break clause in the lease, giving the required six months notice.

Following the notice, M&S paid the rent that fell due on 25 December 2011. The leases came to an end on 24 January 2012.

M&S then sought to recover from the landlord the rent, service charge, insurance and parking charges for the period from when it had vacated the building on 24 January through to 24 March 2012.

The landlord refused the rent refund request and the case went to the High Court.

Although there was nothing in the lease to make provision for the refund of an advance rent payment, the High Court somewhat found in favour of M&S and determined that the retailer was in fact entitled to a refund.

The landlord then took the case to the Court of Appeal, where it was overturned.

The Court of Appeal said that the terms of the lease did not entitle M&S to a refund of the rent or any other payments made in advance of the break date.

M&S then took their appeal to the Supreme Court, where it unanimously upheld the Court of Appeal’s decision. The Supreme Court clarified that a tenant should not be entitled to a refund of any payments that relate to the period after the break date unless the lease makes express provision for such a refund.

So, whilst this is good news for commercial landlords who may have feared an onslaught of former tenants seeking rent refunds, it’s clearly an unpalatable one for M&S, which will now be facing a substantial legal bill in addition to the loss of rent.

In our view at Brady Solicitors it is, however, a decision that is sensible and pragmatic, and one that brings clarity for both landlords and tenants.

It is also a decision that reinforces the importance of careful consideration – and robust negotiation – of lease terms.

Commercial tenants need to be very careful about agreeing when a break date falls in a lease. We recommend that you ensure the break date tallies with the quarter end – or other date when the rent falls due.

If the break date does fall between rent payment dates then we would recommend you seek to include clear terms – that express provision mentioned above – to allow a refund of advance rent and other payments.

For expert legal advice on any aspect of commercial landlord and tenant matters, contact Brady Solicitors on 0115 985 3450 or click here to send an email.

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