Break clauses and rent apportionments

On 2 December 2015, the Supreme Court gave judgment in Marks & Spencer (M&S) v BNP Paribas Securities Services Trust Company (BNP), a case of general importance when implying terms into contracts and of particular importance to property where a break date occurs between rent payment dates and rent is payable in advance.

In summary, the facts of the judgment were that M&S had exercised a break clause, ending its lease early. M&S sought a refund of the payments paid in advance to ensure compliance with the break clause in respect of rent, service charge, car parking licence fee and insurance charges, but which related to the period after the break date. The issue of the repayment of the service charge had been settled during High Court proceedings. The case subsequently went to the Court of Appeal by which time M&S requested repayment of rent, the insurance charge and car parking licence fee.

M&S’s primary argument was that the lease wording (in relation to the payment of rent), that it be “paid yearly and proportionately for any part of a year by equal quarterly instalments in advance" meant that, if the lease had run its full course, M&S would only have had to pay an apportioned part of the rent due on the last payment date because both landlord and tenant would have known that the lease would expire before the next quarter day.

M&S contended that commercial common sense should be applied and there should be a term implied requiring a refund of sums paid in advance for the period after the break date. By contrast, BNP argued that the lease was a very detailed document, which had been entered into between two substantial and experienced parties, and had been negotiated and drafted by expert solicitors against the background of a well-understood area of law. In particular, the lease made provision for a large number of contingencies. BNP contended that the law imposes strict constraints on the exercise of its power to imply terms into contracts, that a term can only be implied if it is necessary in the business sense to give efficacy to the contract.

The Supreme Court found in favour of BNP. It confirmed that, if a term is to be implied into a contract, it must be either necessary for business efficacy or so obvious that it goes without saying. It also confirmed that the process of interpreting a contract is separate from the process of implying terms; a contract must be construed before terms can be implied. It concluded that the lease was not unworkable and declined to imply the term M&S requested in this case. It was further stated that, save in a very clear case, it would be wrong to attribute to a landlord and a tenant an intention that the tenant should receive an apportioned part of the rent payable and paid in advance, particularly when they had entered into a full and professionally drafted lease and it was established law that the Apportionment Act 1870 did not apply to rents payable in advance. Rent payable and paid in advance could be retained by BNP. The same was true in relation to the car parking licence fee and the insurance charges.