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Controversial break case update

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15/10/2013

Walker Morris reported recently on the High Court decision in Marks & Spencer v BNP Paribas Securities [1]. The decision sparked controversy within the real estate industry, particularly amongst commercial landlords, tenants and property litigators, because it seemed to fly in the face of established break notice principles and practice.

It has previously been clearly understood, and been strictly endorsed by the courts, that post-break ‘overpayments’ (i.e. those rent and other lease payments which tenants are required to make in advance, but which end up relating to periods following mid-term break dates) will only be recoverable from landlords where the particular lease in question contains express and very clear wording to that effect.

A surprising decision

In M&S v BNP however, the High Court held that BNP Paribas was obliged to repay to M&S such post-break overpayments, on the basis that implying such a term was necessary to give business efficacy to the lease. In an unprecedented move, the court stated that a reasonable person reading the lease would expect that, where a break took effect, rent would only be payable for the term leading up to the break date. The court also reasoned that, with or without express words, the tenant would have been entitled to apportion the rents in respect of the last quarter had the lease run its full term. This application of a ‘reasonable person’ test to the question of apportionment and break payments was justified by the High Court on the facts of the particular case, but it was inconsistent with the approach which had been adopted and approved in other similar cases previously.

A not-so-surprising appeal

Perhaps not surprisingly, the first instance decision has been appealed and a date has now been set for the appeal hearing in March 2014. Walker Morris will keep this important case under review and will report on the appeal and any further developments with interest.

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[1] [2013] EWHC 1279 (Ch)

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