Supreme Court overturns lease payment decision

In a surprising reversal of a 2013 Court of Appeal decision, the Supreme Court has ruled that a landlord who received rent in advance for an entire quarter when the break notice was effective half way through the quarter does not have to repay the overpayment.

Our original case report follows

In circumstances where a tenant of commercial property paid a full quarter’s rent notwithstanding that the lease was terminated pursuant to a break clause midway through that quarter, the tenant was entitled to reimbursement of rent in respect of the period when it was no longer in occupation of the premises.

[offices] Marks and Spencer Plc. (the tenant), who occupied four storeys of a London office block, invoked a break clause in the lease which had the effect of terminating the lease on January 24 2012. Prior to termination, the tenant had already paid a full quarter’s rent in respect of the period up to March 24 2012.

BNP Paribas (the landlord) refused to reimburse the rent paid by M&S in respect of the two-month period when it was not in occupation of the premises. That was on the basis that the break clause was only exercisable in circumstances where there were no arrears of rent. The lease was silent on what should happen in such circumstances and the landlord also argued that a settlement agreement reached between the parties on termination of the lease precluded the tenant’s claim for reimbursement.

Ruling in favour of M&S, the High Court decided that it was just and equitable to imply into the lease a term requiring the landlord to repay an apportioned part of the quarter’s rent in respect of the two month period subsequent to termination of the lease. On a similar basis, the court also directed reimbursement to the tenant of overpaid car parking licence fees, insurance and service charges.