Landlords can keep rent paid in advance of a break date!

Landlords can keep rent paid in advance of a break date!

The long awaited decision about whether Marks and Spencer were due back a pro-rata amount of rent after they issued a break in their lease has finally been made.

A very short recap: – There was a dispute about the law of implied contract terms. M&S believed they were entitled to the repayment of rent paid to BNP after a break notice was issued. Their case went initially to the High Court who said that M&S were entitled to the money back and then to the court of Appeal who said there weren’t. M&S went to the Supreme Court – the highest court in the land and the case has just been decided on by Lord Neuberger, Lord Clarke, Lord Sumption, Lord Camwarth and Lord Hodge.

Lord Neuberger said that he thought it has been well-established for some time that rent payable and paid in advance can be retained by a landlord. Therefore if you wanted to apportion any rent payable in advance you would have to put something in the lease to say that when you were negotiating. Due to the fact that in this case both sides had spent a lot of time and effort in incorporating things into the lease but had not made any mention of apportioning rent, the Supreme Court concluded that it would be wrong to imply a term to refund to M&S the rent for the period after the break date. The contract could still work without implying a term so the Supreme Court saw no reason to do so.

This case is really important because it goes to show the need to make specific provision for the reimbursement of rent following the exercise of a break option. If this isn’t provided for then tenants need to be aware that they should budget accordingly when calculating what it will cost them to break the lease.

It is also well worth both tenants and landlords being represented at the early stages of negotiation. Hopefully then advisers can seek to completely avoid a break date which falls midway through a quarter which would remove the problem altogether.

Good news for landlords on this occasion who can now rest easy that where they have a similar situation to this case they can retain any overpayments of rent made by their tenants in exercising conditional break clauses!

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