Tenant Break Clauses have become a common clause in modern leases. Their inclusion in a lease allows the tenant flexibility in the event that they wish to vacate premises before the contractual end of the lease. However, negotiating a successful break of the lease can be complicated due to the legal requirements and preconditions often included.
The Supreme Court has now handed down a ruling in the case of Marks and Spencer Plc (M&S) v BNP Paribas Securities Services Trust Company (Jersey) Limited (BNP)  which deals comprehensively with a number of issues including the apportionment of rent where a break date does not fall on a rent date.
One of the key facts was that the rent was payable in quarterly in advance. In July 2011 M&S gave notice to terminate the lease in January 2012 and paid full quarters’ rent, service charge and insurance in December 2011 as required by the lease. M&S also paid a premium to break the lease which was equivalent to one year’s rent. The lease did not allow for rent apportionment.
Following the break, M&S issued proceedings to recover rent and service charge of £1.47m for the period from the Break Date to the end of the Quarter in March 2012, despite there being no wording in the lease entitling M&S to recover the apportioned element. Following contrary decisions in the lower Courts the Supreme Court agreed with the landlord and M&S were not entitled to reclaim rent. However they were entitled to repayment of overpaid service charge.
Following this decision the advice for both landlords and tenants; their surveyors and lawyers is give thought to the timing and wording of a break clause when new leases are being negotiated. Tenants should ensure that wording is incorporated that allows them to recover rent for rent periods after a break. Alternatively break dates should align with rent payment dates or the tenant be permitted to pay rent up to the break date. Clarity of the lease wording is key to all options and therefore professional advice should be taken to avoid expensive litigation!