Andrew Baines
Posted on 16 Dec 2015

Case study: Marks & Spencer v BNP Paribas Services Trust Company

If you are a tenant of premises with a break option, the decision of the Supreme Court on 2 December 2015 will continue your irritation that if the break is exercised between rent periods, you are unlikely to receive a refund of rent for the period after you vacate.  If you are a landlord, you will be relieved that the Supreme Court has not departed from the established position that rent paid in advance is not apportioned from day to day, and that if a tenant vacates between rent periods, you will not be required to pay back any part of the rent.

The point is illustrated simply by a summary of the facts of the M&S case.

The circumstances were entirely normal.  M&S took a lease of premises from 25 January 2006 to 2 February 2018 at an annual rent of £919,800 payable "yearly and proportionately for any part of a year by equal quarterly instalments in advance on the usual quarter days".  The lease also contained a break provision, allowing M&S to terminate its occupation on 24 January 2012 by giving BNP six months prior written notice.  There were conditions to the break, including that there be no arrears of rent on the break date.

M&S served a break notice and the lease duly terminated on 24 January 2012.  However, shortly before 25 December 2011, M&S paid a quarter's rent, to cover the period up to 24 March 2012, as it was obliged to do.  After vacating, M&S asked the landlord to return the two months' worth of rent which it believed it had over-paid because it had not been in occupation between 25 January and 24 March 2012.

There was no express agreement in the lease to entitle M&S to such a refund, but M&S argued that it was an implied term that such a refund should be paid.  The trial judge agreed.  That decision was overturned by the Court of Appeal and, on 2 December 2015, the Supreme Court supported the landlord's position and decided that no such implied term existed and therefore no refund was due.

How can a tenant avoid this situation? 

First and foremost, a tenant can attempt to negotiate an express agreement in the lease that there should be a refund if a break is exercised between rent days.  Such provisions are uncommon and landlords would undoubtedly resist them.

An alternative is to agree a break date immediately before a rent day.  That way, the tenant will not pay for any period when it is not actually in occupation.  However, this can be problematical, because most break dates are described by reference to an anniversary of the start of the lease, and leases tend to start when the tenant wants occupation, which may or may not coincide with a quarter day.  In the M&S case, the provenance of the break date lay in a corresponding date in a superior lease of the premises.

The same principle applies in the case of a surrender and forfeiture.  Naturally, there greater likelihood of the parties agreeing a refund as part of a surrender, but only if they remember to do so.  Danger for the tenant lurks in casual negotiations and informally concluded agreements, which serves to emphasise the need to take professional advice.