Alexandre_Naud_phOn 7 October 2015 the Supreme Court heard the case of Marks and Spencer plc v. BNP Paribas Securities Services Trust Company (Jersey) Limited. The Supreme Court considered whether the appellant’s lease contained an implied term allowing the appellant, upon termination of the lease under a break clause, to recover rent monies paid quarterly in advance and attributable to the period following the break date.

Factual Background

The appellant entered into a lease with the respondent. Under the terms of the agreement, rent was payable in quarterly instalments, in advance and on the usual quarter days. The lease also included a break clause which entitled the appellant to determine the tenancy on 24 January 2012, part way through the rental quarter. The break clause was conditional upon the appellant having paid:

  1. all rent monies due; and
  2. a premium equal to one year’s rent.

On 25 December 2011, the landlord invoiced the appellant for the rent up to 24 January 2012 only. At the time the invoice was issued, it was uncertain whether the lease would terminate on the break date as the appellant had yet to pay the necessary premium. As a result, the appellant had an obligation under the terms of the lease to pay the full rental quarter. The obligation prevailed regardless of the fact that, once the appellant paid the premium, the tenancy would terminate before the end of the quarter.

As planned, the lease did terminate on the break date of 24 January 2012. The appellant asked for a refund of the rent paid in respect of the period after the lease ended. The landlord argued that the appellant was not entitled to a refund because there were no express provisions to that effect in the lease.

High Court Decision 

The appellant submitted that it should be entitled to recover the post-break date rent due to a term which it argued was implied into the lease (under the authority of Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10). The appellant argued that a reasonable person would expect the tenant to pay rent only for its time in occupation and therefore the appellant should be allowed to recover the overpaid rent.

The High Court concurred and found in favour of the appellant because:

  1. The appellant should be in the same position as a tenant who had paid the premium before or on 25 December 2011. If the appellant had paid the premium prior to the December quarter day, the parties would have known with certainty that the tenancy would terminate on 24 January 2012. Therefore, the appellant could have paid the apportioned rent as invoiced by the landlord. The provisions of the lease did not require the appellant to pay the full quarter in this scenario.
  2. The lease already provided compensation for the landlord’s loss of income after the break date, because the break clause was conditional on the payment of the premium. It was unlikely that the parties would also intend the landlord to retain the rent in respect of the broken period.

Consequently, the Court held that the suggested term was both reasonable and necessary to give business efficacy to the lease.

Court of Appeal Decision

The Court of Appeal overturned the High Court’s decision. Giving the leading judgment for the court, with which Lord Justice Jackson and Lord Justice Fulford unanimously agreed, Lady Justice Arden noted that the parties were aware that the present issue could possibly arise prior to completion of the lease and had had discussions about what would happen on termination by operation of the break clause. For instance, the lease dealt with other consequences of termination and required the appellant to deliver the original lease and any other tenancy documents back to the landlord. There was nothing preventing the parties from including another clause to deal with the specific issue. If the parties had truly intended for any rent monies paid in advance to be refunded in such a situation, the court concluded, they could and would have included an express provision to that effect.

Consequently, the Court of Appeal found the test for an implied term was not satisfied: “the correct inference to draw is that the parties proceeded on the basis that the loss from a payment of rent for the broken period should lie where it fell. Thus no term for repayment is implied”. Under the express provisions of the agreement, the loss of rent should lie with the appellant. In delivering its judgment, the Court restated the traditional view that a tenant is not entitled to recover rent monies paid for period after a break date unless there is an express provision in the lease.

Supreme Court Appeal

The appeal was heard by Lord Neuberger, Lord Clarke, Lord Sumption, Lord Carnwath and Lord Hodge. A full case comment will be posted once judgment has been handed down.