Break Clauses After M&S v BNP Paribas

by | Dec 3, 2015 | Dilapidations

For commercial tenants thinking of using a break clause, the Supreme Court made the cost of doing so clearer, and in many cases higher. On 2 December 2015 it gave judgment in Marks and Spencer v BNP Paribas, and held that a tenant who breaks part way through a quarter is not entitled to a refund of rent paid for the days after the break date, unless the lease expressly provides for one.

What happened

The tenant had to pay a full quarter’s rent, together with a break payment, to exercise its break. It complied, the lease ended, and it then asked for the rent covering the period after the break date to be repaid. The lease said nothing about a refund. The court refused to imply a term giving one. A term will only be implied where it is necessary to make the contract work, not simply because it would be fair.

Advice for tenants

  • Treat every condition as strict. Pay the full sums demanded on time, even if it feels like an overpayment.
  • Check any repair condition. A break that depends on compliance with the repairing covenants is risky, because a landlord can argue that even minor breaches mean the condition has not been met.
  • Give vacant possession properly. Remove your fit out, people and belongings if the lease requires it, and return the keys.
  • Start early. Commission a review of your repair and reinstatement liabilities many months before the notice date, so that works can be finished in time.

Advice for landlords

When a break notice arrives, check the conditions carefully and keep records of the condition of the premises at the break date. If the break is valid, your remedy for disrepair is a dilapidations claim, and that claim must be properly prepared and proportionate to your actual loss.

For new leases

Both sides can agree an express refund of rent paid in advance, and should consider doing so. Clear drafting now avoids disputes later.

The RICS guidance on dilapidations sets out how claims should be handled. Our Dilapidations service acts for landlords and tenants, and you can see how we prepared a proportionate claim for a portfolio landlord.