The Supreme Court has confirmed its reluctance to interfere with contract terms, in a unanimous decision on a Marks & Spencer (M&S) lease for commercial premises.
M&S lost its legal fight for the repayment of rent, in M&S v BNP Paribas Securities Services Trust Company (Jersey) [2015] UKSC 72.
The appeal concerned M&S’s lease on a building in Paddington, London, which was paid in advance quarterly. M&S exercised its rights as tenants under the break clause to end the lease in January 2012 after it had paid its quarterly rent in December 2011 and a break premium of £919,800. It then asked for a refund of the rent it had paid for the period from January to March 2012. Whether or not it could depended on whether a term allowing for this should be implied in the contract.
Delivering judgment, Lord Neuberger said that, “while the difference in result between the tenant paying the £919,800 plus VAT before or after 25 December 2011 can fairly be said to be capricious or anomalous, it does not begin to justify a suggestion that the contract is unworkable.
“Indeed, the result cannot be said to be commercially or otherwise absurd, particularly as it is entirely up to the tenant as to when that sum is paid. Further, the fact that rent payable in advance is not apportionable can always lead to potential unfairness.”
Richard Brown, property partner at Thomas Eggar, says: "The court unanimously dismissed M&S’s argument that a term should be implied into its lease requiring the ‘excess’ rent to be repaid, notwithstanding that M&S had been required, as a condition of exercising the break, to pay the equivalent of a year’s rent (nearly £1m) as a premium.
“The decision reflects what had, at least until the earlier high court decision, been regarded as the likely legal position, despite a lack of direct legal authority on the point. Had the Supreme Court decided otherwise, this would have resulted in a major re-examination of leases broken over recent years, where the exercise of early lease breaks has been commonplace.
“The decision also reflects the reluctance of the courts to interfere with a bargain by implying additional terms just because it may appear unfair in its operation.”
Jane Fox-Edwards, solicitor at Allen & Overy, which acted for BNP Paribas, says: “The judgment applies to contract law more widely. In keeping with other judgments this year, the message from the Supreme Court is clear. Where there is a detailed commercial contract the court will respect the bargain struck and veer away from interfering with what the parties have said.”
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