One of the most eagerly awaited property cases of the year today reached the Supreme Court, where Marks & Spencer renews its dispute with the landlord of its former head office premises at The Point, Paddington.
In May 2014, the Court of Appeal allowed the landlord’s appeal, overturning a ruling that had permitted Marks & Spencer to claw back around £1.1m in rent and other charges after exercising a break clause in its lease of the premises.
But now M&S is seeking to persuade Lords Neuberger, Clarke, Sumption, Carnwath and Hodge at the Supreme Court to restore the initial decision. As the case is being heard so early in the new legal term, it raises hopes that a decision will be handed down before the end of the year.
At the outset of the one-day appeal, Lord Neuberger said: “The point ultimately is quite a short one. That doesn’t mean it is an easy one.”
Guy Fetherstonhaugh QC, opening the appeal on behalf of M&S, explained that the key question is whether it is an implied term of the four leases involved that a tenant who makes quarterly rent payments in advance is entitled to repayment, upon termination of the lease under a break clause, of rents attributable to the period after the break date.
In addition, he said that the case will involve consideration of whether the correct approach was taken in Ellis v Rowbotham [1900] 1 QB 740.
Speaking ahead of the hearing, Matthew Bonye, head of the real estate dispute resolution group at Herbert Smith Freehills, said: “This is worth following for many reasons. First, the case itself may have a direct impact on landlord rents where the facts are similar, albeit that the case turns on specific wording and whether implied terms exist that influence how much rent is paid.
“Second, the Supreme Court may well have cause to revisit the Ellis v Rowbotham case which for over a hundred years has ruled the roost by deciding that rent payable in advance is not apportionable. If that principle is overturned, it would not be good news for landlords who currently take the full quarter’s rent even if the lease is terminated between quarter days.
“Thirdly, this is a battle royale between two top flight QCs in the Supreme Court and will be worth watching for that reason too.”
Landlord BNP Paribas Securities Services Trust Company (Jersey) Ltd – represented by Nicholas Dowding QC – persuaded the Court of Appeal to overturn a High Court ruling which it claimed wrongly gave M&S a “cashback” when it exercised its break clause to determine four leases of floors 3, 4, 8 and 9 of The Point, which it used as overflow space to its new HQ at nearby Waterside House, on 24 January 2012.
Arden LJ overturned a ruling by Morgan J that the court could imply a term into the lease to enable apportionment of rent paid in advance for the period after the break date, in circumstances where the parties negotiated a break premium but said nothing about such apportionment of rent.
The order she made was that, instead of the £1,147,696 the landlord was ordered to pay, M&S should only recover £204,972.
M&S served a break notice on 7 July 2011, paid the quarter’s rent due on 25 December 2011 plus the sum of £919,800 plus VAT payable as a condition of the break clause, but argued that it was entitled to be repaid the apportioned part of the quarter’s rent from 24 January 2012 to 24 March 2012. It claimed more than £1.1m in rent, service charges, insurance rent and car park licence fees.
In the High Court decision substantially overturned by the Court of Appeal, Morgan J held that, absent the break clause, a proportionate part of the rent would be payable on the last quarter day of the lease (25 December 2017) before it expired by effluxion of time on 2 February 2018 and that the tenant would have been in the same position had it been certain on 25 December 2011 that the lease would end on the break date.
As a result, he found that a term should be implied entitling the tenant to recover the sums from the landlord.
Marks and Spencer PLC v BNP Paribas Securities Services Trust Company (Jersey) Limited & Anr Supreme Court (Lords Neuberger, Clarke, Sumption, Carnwath and Hodge) 7 October 2015
Guy Fetherstonhaugh QC (instructed by King & Wood Malleson LLP) for the appellant
Nicholas Dowding QC (instructed by Allen & Overy LLP) for the respondent
