Chloe Benson and Susannah Markandya address issues raised by the M&S appeal
Question
The Supreme Court is due to hear the appeal in Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd in October this year. What issues is the appeal likely to raise?
Answer
As break clause cases are very much fact-specific, it is likely that the Supreme Court will consider the wider issues of the nature of the payment of rent and the implication of contractual terms in the context of a landlord and tenant relationship.
Explanation
The specific facts relating to Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2014] EWCA Civ 603; [2014] EGILR 32 were that the break option required the tenant to meet two preconditions:
1. There must be no arrears of basic rent or VAT on basic rent; and
2. The tenant must have paid a break penalty of £919,800, plus VAT.
M&S served notice to determine its lease on 24 January 2012 and paid the December quarter’s rent in full. Once the lease had been determined, M&S sought to recover the rent for the period from 25 January 2012 to 24 March 2012. The landlord refused to refund M&S on the basis that the full quarter’s rent was required to be paid and that there was no provision entitling it to a refund. The judge at first instance held that the lease contained an implied term entitling M&S to recover the overpayment. The judge said that the landlord had been compensated by payment of the break penalty, which made it unlikely that there had been an intention for the landlord to keep the full quarter’s rent.
The Court of Appeal overturned that decision and considered the wording of the lease in the context of the circumstances. It concluded that if the parties had intended the overpayment to be repaid following the break, wording to this effect would have been incorporated into the lease.
Interestingly, BNP accepted that M&S was entitled to recoup any service charges it had paid that related to services that had not been provided by the break date even though there was no express provision in the lease for this. M&S tried to use this concession to establish a general principle that a lessee should only pay under a lease for what it actually receives. The Court of Appeal rejected that, reasoning that rent was not simply a payment for use and occupation of premises, but is also used as “a yardstick for compensating a party for some loss”.
In giving permission to appeal, the Supreme Court directed the parties to consider whether the long-standing principle that rent payable in advance is payable in full on the due date, despite the termination of the lease before the end of the relevant period, derived from Ellis v Rowbotham [1900] 1 QB 740, should be overturned. Although the permission to appeal has come as a surprise to many, it raises the possibility that the court may wish to consider the issues of the nature of rent, the implication of contractual terms, and break conditions on a more general basis.
Question
What guidance does the Court of Appeal judgment in M&S give about implying unwritten terms into a lease and how is this area of law likely to change following the appeal to the Supreme Court?
Answer
The Court of Appeal restated the test for implication of a term set out in Belize and gave some useful guidance about how the test should be applied. It would be surprising if this area of law changed following the appeal.
The question in M&S was whether the judge was right to imply a term into the lease requiring the landlord to repay part of an advance payment of rent (and other charges), which related to the period after the date on which the lease was terminated on the exercise of the lessee’s break clause (“the broken period”).
Explanation
The Court of Appeal said the judge applied the right test for the implication of a term, that is, whether the provision would spell out in express words what the lease, read as a whole against the relevant background, would reasonably be understood to mean. This is the test set out in Attorney General of Belize v Belize Telecom [2009] UKPC 10.
The starting point, however, is that if there is no express term, none should be implied, because if the parties intended that a particular term should apply they would have included a term to that effect.
The Court of Appeal had particular regard to:
(i) the fact that the parties must have foreseen the possibility of an advance payment of rent covering the broken period and yet had chosen not to make express provision for the repayment of rent;
(ii) other terms in the lease dealing with consequences of termination by operation of the break clause indicated that there had been some discussion about what should happen in that situation;
(iii) the case law at the time the lease was entered into showed there was no precedent for implying a term for repayment of rent for the broken period.
Taking these factors into account, the Court of Appeal concluded that there was no basis for implying a term for repayment.
The test for the implication of contractual terms is unlikely to change following the appeal to the Supreme Court later this year. The appeal is likely to focus on the application of the test to the facts of the case, and wider issues relating to landlord and tenant law.
Chloe Benson is an associate at Charles Russell Speechlys LLP and Susannah Markandya is a barrister at Enterprise Chambers
E-mail your questions to egq&a@enterprisechambers.com and egq&a@charlesrussell.co.uk
