Breaking point

Breaking the chain iStock 000005716223XSmall 146x219The High Court has handed down an important ruling on tenant break clauses. Peter Hall examines the judgment.

A common scenario:

  • A tenant serves notice under a break clause in its lease.
  • The break date is an anniversary of the date the lease completed.
  • Rent is payable quarterly in advance on the usual quarter days.

What is the tenant’s liability for rent for the quarter when the break date falls? Is he liable to pay a rent for a full quarter, or just up to the break date?

If the tenant pays a full quarter rent, can he subsequently claim a refund for the period from the break date to the end of the quarter, even if the lease is silent on this point?

The answer to these questions has become a little clearer since the recent case of Marks and Spencer v BNP Paribas Security Services Trust Co Ltd.

M&S found themselves in exactly the scenario outlined above. The break date was 24 January. The landlord invoiced M&S for rent up 24 January only. M&S however paid the full quarter’s rent up to 24 March, wisely as it turned out, for the landlord later issued new invoices covering the full quarter and stating that the original invoices were “incorrect”.

The break option was conditional upon several matters including the payment of a premium on or before the break date. The lease was silent as to there being any refund of rent for the period from the break date to the end of the quarter.

The judge dealt with the case as follows:

  1. The break option was conditional so that when a quarter’s rent fell due on 25 December nobody could say for sure whether or not the break would be effective and the lease would actually end on 24 January. Accordingly, M&S were obliged to pay a full quarter’s rent.
  2. M&S complied with the break conditions and the lease ended on 24 January. Although the lease was silent as to there being any refund, a term could be implied that such a refund was payable. M&S were therefore entitled to a refund of rent for the period from 25 January up to the end of the quarter.

In our view the decision in the M&S case is common sense. The points to be taken are these:

  • A tenant can safely pay rent up the break date only where the break option is unconditional.
  • If there are conditions attached to the break option that remain to be satisfied, the tenant must pay a full quarter’s rent.
  • Once the break has taken effect and the lease has ended, the tenant should be entitled to claim a refund of rent for the period from the break date to the end of the quarter.

When negotiating leases, tenants should still seek express ‘refund’ clauses, rather than relying on there necessarily being an implied ‘refund’ term. A well-drafted express clause might provide for the refund to be paid without any deduction or set-off, which could be useful if the landlord claims there are outstanding dilapidations or other tenant liabilities.

One final question left unresolved by the M&S case is what happens if the landlord issues an invoice up to the break date only, which the tenant pays? Would the tenant still be in breach of its lease by not paying a full quarter?

Pending a decision on that point, the only safe advice to a tenant in that position would be to pay a full quarter, as M&S did.

Peter Hall is an associate at Weightmans. He can be contacted on 0161 233 7330 or by This email address is being protected from spambots. You need JavaScript enabled to view it..

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