The Supreme Court has delivered its much-anticipated decision in the Marks & Spencer Plc v BNP Paribas Services Trust Company (Jersey) Limited case, and it’s not good news for retailers.
In 2011, M&S served break notices to terminate its sub-leases at The Point in Paddington, London. Following service of the notices M&S paid its December quarter’s rent in full as its break clauses did not allow for apportionment of the rent due up to the break date (break clauses rarely allow for this as rent is generally paid quarterly in advance). The sub-leases were successfully brought to an end a month later.
M&S subsequently submitted a claim to its landlord for £1.1m, in respect of a refund of rent, service charge and other sums it had paid in advance. The landlord refused to pay.
In an important decision, the Supreme Court has now conclusively confirmed the law on this point and it is this: where a break clause in a lease does not contain a clause that expressly entitles the tenant to a refund of any sums paid in advance, such sums will not be recoverable by the tenant.
No doubt landlords will breathe a huge sigh of relief at this judgment. But what should retailers do to protect themselves?
Now, more than ever, it is vital to carefully negotiate the terms of any break right prior to completing any new lease, even though this may be the last thing you are thinking about when taking on new premises. A carefully drafted apportionment clause should be included so that any sums paid in advance can be reclaimed and, as further protection, break dates should ideally be agreed to fall on a quarter day, although this still would not assist in repayment of service charge and insurance, which are typically paid annually.
When taking assignment of an existing lease, you should ask your solicitor to review the terms of any break clause so you are fully informed of the cost of exercising the break clause. Above all, get advice early so that you are not faced with nasty surprises should circumstances change and you want to leave the premises earlier than the term end.
Vanessa Laundon is a senior associate in the retail team at law firm Howard Kennedy