Break clause: right to repayment of rent for period after the termination?

In Marks & Spencer plc v Bnp Paribas Securities Services Trust Company (Jersey) Ltd ([2014] EWCA Civ 603, CA (Eng)) a lease contained a break clause. If exercised, the lease would determine in between the quarter days on which rent payments were to be made. The tenants exercised the break clause. On the next quarter day, they paid a full quarter’s rent. After the lease had come to an end, the tenants argued that they were entitled to a repayment of that portion of the rent attributable to the period after the end of the lease.The lease provided that rent was payable ‘yearly and proportionately for any part of a year by equal quarterly payments in advance on the Quarter Days.’ At first instance, it was decided that a term should be implied requiring the landlord to repay the portion of the final rent payment attibutable to the period after the termination of the lease. The landlords successfully appealed against this.

Arden LJ gave the only full judgment. After the decision of the  Privy Council in A.G. of Belize v Belize Telecom Ltd , the approach to implied terms has become an aspect of the general principles of contractual interpretation:

‘The test in Belize requires the court to ask whether the agreement has the meaning that such a term would achieve, because, even though the parties did not expressly include that term in their agreement, that is what their agreement means.’ ([23]).

In the next paragraph:

‘the implication of terms by interpretation requires a high level of loyalty to the parties’ agreement, read against the admissible background. The party seeking to establish an implied term must therefore show not simply that the term could be a part of the agreement but that a term would be part of the agreement.’ ([24])

The starting point is that no term should be implied ([25]). It must be necessary to imply a term to achieve the parties’ express agreement (determined in the usual way) ([26]).

Here, the parties must have realised that this question would arise and could have dealt with it by express words ([35]). The state of the case law at the time of the lease (part of the admissible background) was such as to point to the conclusion that there was no right to recover the rental for the period after termination. This reinforces the need for express words ([39]) No term was to be implied ([43])

Michael Lower

 

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