Supreme Court affects the Magic and Sparkle?

9 December, 2015

SparkleOn Wednesday an eagerly anticipated judgment by the Supreme Court was released in the case of Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Limited and another. Marks and Spencer (the tenant) served a notice to break the tenancy of their head office in Paddington. The break clauses required all rent to be paid at the break date (24 January 2012) plus an additional break penalty of £919,800 plus VAT. M&S paid the full December 2011 quarter’s rent in advance, and then the penalty one week before the break date.

The question that arose was whether, in the absence of an express provision in the lease, it could be implied into it that M&S were entitled to a refund of the rent for the period after their lease had terminated.

At first instance the judge found in favour of M&S. The Court of Appeal however found in favour of the landlord.

The Supreme Court recognised the strength of both arguments, noting that in the circumstances it seemed unlikely that the parties intended for the landlord to retain the whole payment. However, the court felt that the longstanding principle that rent payable in advance was not automatically apportionable had been well known to the market at the point the lease was entered into, and noted the size and substance of the parties involved and the detail in which they had addressed other important issues in the lease. It was therefore not prepared to imply a term requiring a refund to be made.

That said, the leading judgment did appear to suggest that the position could have been different had M&S made the penalty payment before the December quarter’s rent fell due. It would then have been certain that the term was coming to an end in January, and consequently have been entitled to rely upon the standard lease end apportionment wording contained in the lease.

The judgment has also clarified the law on implied contractual terms in general, emphasising that whilst there is no need to show absolute necessity before such a term will be implied, the requirement of “business efficacy” is still a high one.

Whilst some interesting questions remain open for argument, the judgment ought to provide parties in a similar situation with some more certainty over their respective positions, and prompt well-advised tenants into insisting on the inclusion of suitable wording in their leases if a refund was part of the deal.

By Richard Housley (Associate)