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M&S v BNP Paribas – Break clause apportionment and implying contractual terms

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05/02/2016

In an important decision of interest to landlords, tenants and anyone concerned with commercial contracts, the Supreme Court has confirmed the correct approach to the implication of contractual terms and has established that, without an express apportionment provision, post-break ‘overpayments’ will not be refundable.

Prior to this case it was accepted law that a tenant would only be entitled to a refund of rent paid in advance if there was an express term to that effect in the lease. At first instance, however, despite the absence of an express apportionment provision in the lease placing any obligation on the landlord to return paid sums relating to the post-break period, the High Court held that the landlord (BNP Paribas) was obliged to repay to the tenant (M&S) rent which had been paid in advance but which related to the period following a contractual lease break. The High Court decided that a reasonable person would expect that rent would only be payable for the period up to, and not beyond, the break date; and that implying a term to that effect was necessary to give business efficacy to the lease.

The Court of Appeal reversed the High Court’s decision. The Supreme Court, agreeing with the Court of Appeal, has now authoritatively reasserted the law relating to apportionment of paid sums following a lease break and has reiterated important principles regarding the implication of terms into commercial contracts. The key points are:

  • Where rent is payable in advance and a break date falls part way through a payment period, the tenant must pay the full period’s rent and will not be entitled to a refund for sums relating to the post-break period unless there is an express apportionment provision to that effect in the lease.
  • The implication of terms into commercial contracts is potentially intrusive, such that terms will not be implied lightly.
  • When deciding whether or not to imply a term into a detailed commercial contract the court will consider the presumed intention of the parties at the time the contract was made.
  • In order for a term to be implied, the test remains that it must be necessary to give business efficacy to the contract. The test is whether, without the term, the contract simply does not work.
  • Where the parties have entered into a lengthy, carefully drafted contract, particularly where they have been legally advised, it will be difficult to imply any term(s).
  • In addition, for a term to be implied, it must be obvious; capable of clear expression; and must not contradict any express term of the contract.

Landlords will no doubt be pleased that the Supreme Court has definitively ruled that, without an express apportionment provision, post-break ‘overpayments’ will not be refundable. However this judgment is to be lauded even more generally, for its clear message that the courts will not lightly intrude upon any lease or contract, so as to imply additional terms after the event.

For further detailed information and advice, please see our earlier briefing.

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