Break Notices in Commercial Leases
Break clauses are very often subject to conditions and tenants need to be aware that any conditions must be strictly complied with in order to ensure the successful operation of a break. Tenants need to be alert to the fact that such conditions might include payment of rent which relates to a period after the break date.
Case law on break clauses has in recent years produced some harsh decisions for tenants, including the decision of the Court of Appeal in Marks & Spencer PLC v BNP Paribas  EWCA Civ 603 in which it was established that in the absence of an express provision in the lease, a tenant will not be entitled to a refund of any overpayment of rent relating to a period after the break date and no such term should be implied into the lease requiring the repayment of “overpaid rent”.
Yesterday, the Supreme Court handed down it’s judgment dismissing Marks & Spencer’s appeal for repayment of “overpaid rent” following the exercise of a break clause in its lease.
The Supreme Court decision clarifies the law on apportionment of rent and implied contractual terms.
- The Apportionment Act 1870 does not apply to rents payable in advance;
- The position on break clauses mirrors the law on forfeiture, where a landlord who forfeits a lease under which rent is payable in advance, is, in the absence of any express clause to the contrary, entitled to the payment of the whole of the rent which falls due before the lease is determined by forfeiture, although the rent may cover a period after the forfeiture.
- A term will only be implied into a detailed commercial contract where it is necessary to give business efficacy to the contract and the “business necessity” test is met, or in circumstances where the law (by statue or common law) imposes certain terms into certain classes of relationship.
- The Court will not interfere in a bargain struck between the parties to a detailed commercial contract and a term will therefore not be implied:-
- merely because it seems fair to imply such term; or because,
- in hindsight, the parties would have agreed such term had it been suggested to them at the time of negotiating the contract.
- An express term is required to apportion rent payable in advance.
Any tenant seeking to exercise a break clause or negotiating a new lease which is to include a break option would be well advised to seek legal advice at an early stage. Our property team has extensive experience in acting for commercial tenants and can provide advice and guidance on all landlord & tenant issues. For more information or to discuss a particular issue please contact Penni Gibbs.
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