‘This is not any court decision…This is the M&S break clause decision.’ So said City firm Mishcon de Reya of a landmark landlord and tenant case that today reached its climax in the Supreme Court.
In a unanimous decision, the court dismissed Marks & Spencer’s challenge to an appeal court judgment which, according to lawyers, has far-reaching implications for contracts across all industries.
The case relates to former M&S office space at The Point in Paddington, London. In 2011 M&S exercised a break in the lease to serve notice on four floors, ending the lease in January 2012.
Following service of the notices, M&S paid the rent that fell due on 25 December 2011 in full, even though the leases were to terminate a month later. It also paid a break premium of £919,800, which was a condition of operating the break options. The leases came to an end on 24 January 2012.
M&S subsequently claimed that it was entitled to a refund of £1.1m in rent for the period of the contract after it left the building.
In the High Court last year, Mr Justice Morgan ruled that a term should be implied into the lease to allow M&S to recover the money. He found that such a term was necessary to give business efficacy to the lease.
Lady Justice Arden, giving judgment on behalf of the appeal court, disagreed. In her view, the lease would not reasonably be understood to include such an implied term.
The Supreme Court agreed, pointing to the ‘clear, general understanding that neither the common law nor statute apportion rent payable in advance on a time basis’. It would be wrong, the court ruled, to attribute to a landlord and tenant an intention that the tenant should receive back an apportioned part of the rent payable and paid in advance.
Any anomaly in the working of the lease does not establish that the contract is unworkable or that the result is commercially or otherwise absurd, the court decided.
Owen Talfan Davies, real estate litigation partner at Fieldfisher, said: ‘This was not just a property case. While the case provides a greater degree of certainty in respect of a tenant’s liability to pay rents at the end of a lease, the Supreme Court’s decision has a much wider application as regards what terms the court may imply into a contract as a matter of necessity, and therefore the decision has far greater scope than simply dealing with the law relating to commercial property.’
He added: ‘This will, of course, be of scant consolation to M&S who, in addition to not receiving a repayment of the rent paid for the period following the termination of leases at their former Paddington Basin offices, will now face a very substantial legal bill.’
Ryan Diamond, senior solicitor in the real estate dispute resolution team at IBB Solicitors, said: ‘The Court of Appeal decision had re-established the position that if the parties had intended rent to be apportioned it would have been expressly provided for in the lease.
‘As unpalatable as that might be for tenants it was a judgment, based on established and principled decisions, that at least gave certainty to all parties.
‘The Supreme Court decision to hear the appeal had caused uncertainty and raised the spectre of litigation as former tenants who broke their leases sought to justify implied terms to claw back “overpaid” rent.’
A spokesperson for Marks & Spencer said: 'We are naturally disappointed with the outcome but accept the decision. It wouldn’t be appropriate to comment any further.'