Many of you will have seen the recent outcome of Marks & Spencer v BNP Parabis where the two major corporations battled over 2 months’ worth of rent payable. Although this was an issue between two big hitters in London, commercial landlords and tenants, whatever their size, had better take note. The issues faced apply equally whether you are a small independent with a lease on premises or whether you are a local commercial landlord.
The dispute concerned a break clause in the lease. In order for M&S to exercise their right to break, rent had to be paid up to date. The lease required rent to be paid in advance by 4 equal instalments. As a result, a quarter’s rent become due on 25 December 2011 for the period to 24 March 2012.
M&S complied with the terms of the break clause and caused the lease to be determined on 24 January 2012. M&S claimed that, as the lease was determined on 24 January, but it had paid for rent to 24 March, it should be entitled to a refund for the 2 months’ overpayment.
The lease itself did not specifically provide for the tenant to reclaim rent where the lease had been determined early. However, M&S argued that a term should be implied into the lease, which allowed them to seek a refund.
The case moved through the courts, reaching the Supreme Court, which found in favour of the landlord. The Judges saw no good reason to move from the status quo that rent was not apportionable unless specified in the lease. There was no good reason to imply a term into the lease that the additional rent paid should be refunded and the lease was workable in its written form.
It has long been established in law that terms will only be implied into contracts in certain circumstances. Terms can be implied by common intention of the parties; if there is a need to imply a term to give business efficacy to the contract; or by what is known as the ‘officious bystander test’. Under this test, the proposed term will be implied into the contract if it is so obvious that, if an officious bystander suggested to the parties that they include it in the contract, they would reply ‘of course’.
The decision of the Supreme Court has not only provided certainty to all parties regarding rent payable under a lease, but also has potential for a much wider application as to what terms a court will imply into a contract. The court will not necessarily be guided by what is seen to be fair, but will make decisions based on the established tests.
The case also highlights the importance of being fully aware of the written terms of the lease at the point of agreement. Seeking legal advice prior to entering into a contract and being aware of this at the outset could save you the time and expense of embarking on litigation later.