commercial litigation solicitors

Will you be entitled to a refund of sums paid to a landlord for a period following a break date?

In the case of Marks and Spencer plc v BNP Paribas Securities, the tenant had a number of leases relating to an office building in Paddington, London. The leases contained a provision allowing the tenant to bring the lease to an end early on two specific dates.

The first date was 24 January 2012 and was subject to various conditions. Namely, that on 24 January 2012 there were no arrears of Basic Rent or VAT on the Basic Rent and that on or prior to 24 January 2012, the tenant pays to the landlord the sum of £919,800 plus VAT.

In July 2011, the tenant served a notice to terminate the lease on 24 January 2012. On 25 December 2011, the quarter day before the break date, the tenant paid to the landlord a full quarter’s rent and an advance payment of service charge and car parking licence fees. One week before the break date, the tenant also paid to the landlord the sum of £919,800 plus VAT.

Following termination of the lease, the tenant requested that the landlord repay the overpayment of basic rent, insurance rent, service charge and car parking fees for the period after 24 January 2012. The landlord refused to return the money to the tenant.

The High Court decided that the overpayments were due to the tenant and implied a term into the lease obliging the landlord to return the money to the tenant. However, the Court of Appeal and Supreme Court decided that no such term should be implied into the lease. Therefore, in the absence of an express provision in the lease, the landlord was entitled to keep the money the tenant had paid to the landlord for the period relating to after the termination of the lease.

Each lease and contract will be interpreted in light of its own terms and the circumstances that led to the lease being entered into. However, when a tenant is negotiating the terms of a lease that contains a break clause, the tenant should seek an express provision requiring the landlord to refund the rent and any other payments made for the period from the break date up to the next rent payment date. If an express provision is not included in the lease then the tenant will not be entitled to a refund of the sums paid. Lord Neuberger stated that it would only be in exceptional circumstances that a Court would imply such a term into a commercial lease.

If you wish to discuss any of the issue raised in the above blog please contact us on 0161 941 4000 or alternatively you can use the enquiry form found on the right of this page.

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