A recent high court case in which Marks & Spencer won a £1.1 million rent battle against its landlord should serve as a warning to tenants to carefully check their leases before signing on the dotted line, a Birmingham property expert has warned.
In the case against BNP Paribas Securities Services, the landlord of its former head office at The Point, in Paddington. M&S claimed that overpaid rent, service charges, insurance and car park license fees should be repaid after it exercised a break clause in January 2012.
The lease was due to expire on February 2018, but M&S took advantage of a break clause to bring it to an end on 24 January 2012, in the middle of a quarter. It had paid rent and other charges for the full quarter.
Although there was no express clause in the lease requiring the landlord to return the money, the court implied a term into the lease obliging the landlord to refund apportioned sums paid in advance.
The judge ruled that M&S was entitled to repayment of the rent and car park license fees and may be entitled to a further payment in respect of service charges for 2011 and 2012.
Ian Gascoigne, a director in the lease consultancy team at CBRE in Birmingham, said although M&S was successful in its claim, the case should be a stark reminder to tenants to carefully check the terms of their lease agreement, particularly in respect to break clauses.
“While the decision to rule in favour of M&S is a significant and tenant-friendly landmark, when entering into a contract, in this case a lease, it is critical that tenants fully understand what they are signing up to and how it may impact upon their business in the future,” he said.
“Break clauses are a fundamental feature of today’s property market, with occupiers not prepared to sign up to lengthy leases without the comfort of being able to exercise a break. Rent and other payments may now be refunded, for periods beyond break dates, whereas this has not been clear in the past.
“To avoid uncertainty, parties to a lease should specifically agree how rent and other payments made in advance should be treated after the exercise of a break option.”
Mr Gascoigne said the case could open the door to further court challenges on the issue.
“The ruling will give tenants the confidence to demand refunds from landlords for sums paid in advance following determination of a lease under a break option.
“For landlords, the decision has shifted the burden so that it is up to them to distinguish the case and prove that sums paid in advance may be retained.
“What it doesn’t do is overrule the current authority that a tenant must pay the full quarter’s rent to successfully operate a break option if the option requires payment of all sums due up to the break date”
