Partner Article

Supreme Court ruling highlights role of break clauses

Tenants across the North West could potentially lose thousands of pounds in rent where it is paid in advance unless they have clear break clauses in their leases.

A landmark Supreme Court ruling has stated for the first time that unless a lease has an explicit clause clearly stating that rent paid in advance can be refunded, a tenant is at risk of losing this sum should they decide to end the tenancy early by exercising their break clause.

All leases should include carefully worded clauses that protect businesses from losses, whether you are a landlord or a tenant.

Break clauses are now trickier than ever, but they are a useful tool for any tenant allowing the tenant to end their lease early for business purposes. It is essential following the Supreme Court ruling that all tenants and landlords know the pitfalls of the contractual agreement between them.

The Supreme Court ruling comes after a long-standing legal wrangle involving retail giant Marks and Spencer, who were a tenant, and their landlord another commercial giant BNP Paribas Security Services.

In the High Court in 2014, Mr Justice Morgan ruled that Marks and Spencer should be entitled to a refund of £1.1m in rent paid in advance to BNP Paribas Security Services after exercising their break clause and after leaving their offices at The Point in Paddington, London.

Marks and Spencer exercised a break in lease in 2011 by serving the requisite notice to end the lease in January 2012.

Marks and Spencer paid the rent due on 25 December 2011 in full for the next quarter as was more than likely required by their lease, despite knowing the lease was terminating a month later.

A break premium of £919,800 was also paid – a condition of the break clause in the lease.

The Appeal Court disagreed with the High Court ruling and stated the original lease did not include a specific condition that a refund of the advance rent paid must be given to the tenant after a break clause is exercised and the lease ends.

Therefore, Marks and Spencer received no repayment of the advance rent paid.

This decision was upheld by the Supreme Court, so, Marks and Spencer lost the case and face a hefty legal bill, too.

Break clauses can be useful to tenants and landlords alike, allowing for an early determination of a lease for business purposes and or renegotiations between parties for advantageous terms.

This was posted in Bdaily's Members' News section by Violet Brown .