The Supreme Court ruled yesterday that tenants cannot recover rent paid in advance when they exercise a break clause, unless there is a provision in the lease that clearly allows such a refund.
The tenant, M&S had served a break notice on their landlord BNP Paribas ending its lease of head office premises in Paddington. M&S had been required to pay a full quarter’s rent in advance to allow the break clause to be exercised.
M&S subsequently issued court proceedings to recover the amount of quarterly rent that it had “overpaid”. The original High Court decision worked in M&S’ favour and the judge implied a term into the lease allowing M&S to recover the rent paid in advance. As M&S had overpaid to the tune of approximately £1.1 million, the judge saw this as a penalty which helped him imply a term into the lease permitting a refund.
However, BNP Paribas appealed to the Court of Appeal. The court found in BNP’s favour and upheld the usual rule that the lease required an express term stating that the tenant would be entitled to a refund of rent. In the absence of this express term, the court could not imply it and M&S was not entitled to receive any rent back.
Yesterday, the Supreme Court upheld the Court of Appeal’s decision. It would be wrong to imply a term into the lease that a landlord and tenant intended something different to what was expressly written in the lease.
The message is now clear for tenants. In order to claw back any rent paid in advance on service of a break clause, there must be a clear wording in the lease which states something along the lines of “the landlord will refund a proportion of rent from the break date up to the next rent payment date.”
In the absence of such wording, you could end up in the position of M&S and lose out on rent to the tune of £1.1 million.
