Marks and Spencer case breaks down barriers for landlords

A recent case involving high street giant Marks & Spencer highlighted a number of issues relating to the break clause and, in future, should make it easier for landlords to recoup losses under the clause.

The case - Marks and Spencer PLC v BNP Paribas Securities Services Trust Company (Jersey) Ltd & Anr [2014] - saw M&S exercise the break clause under their lease – which meant they had to pay rent to the end of the rental quarter and a penalty to the landlord under the lease.

There was much discussion about whether a tenant who exercised a break clause should be refunded rent and other payments for the period after the break date, although in this case, the lease did not provide for this.

Effectively, M&S paid all relevant sums and negotiated post-event by applying to the High Court to recover the excess rent which had been paid.

Rhodri Lewis, Partner in our Property Litigation team, has been involved in a similar case recently, relating to the exercise of a break clause in a lease. It was argued that vacant possession (which was a condition of exercising the break clause) was not given because the tenant had left shop display furniture in the premises.

The matter was referred to arbitration and we were successful after the arbitrator found that vacant possession had not been given, so the lease was still ongoing and the tenant found itself in substantial rental arrears, with interest plus cost penalties.

M&S’ case highlighted some of the commercial aspects to consider when a right to exercise a break clause is included in a lease. The High Court upheld that the parties could not have intended the landlord to have the excess rent as well as the penalty payments and therefore ordering that the excess rent be repaid.

Once the landlord appealed, the COA overturned the High Court’s decision stating that if there was no such express term it could not be implied and M&S was refused permission to appeal.

It was unexpected for the Supreme Court to then grant permission for M&S to appeal the COA’s decision on 11 November 2014.

It may be that the appeal was allowed because the Supreme Court intends to reassess break clauses generally and evaluate whether terms should be implied into leases in order to achieve a commercially ‘fair’ result. There is, therefore, potential for this area of law to shift substantially, although the date of the Supreme Court hearing has not yet been set and it also remains to be seen if the matter is challenged by M&S in the Supreme Court.

This is an interesting case, which illustrates how both landlords and tenants need to be aware that in the current market, litigation about break clauses is more common and can ultimately prove very expensive.

If you are looking to break a lease, you should ensure that you consider the provisions of the break clause carefully and take appropriate advice on what exactly is required.