Tuesday, 21 May 2013

Commercial Property: Leases

Commercial Property: Leases

Court in M&S Case Favours Tenant Taking a Break From Its Lease


In today’s competitive market tenants are increasingly managing to negotiate an upfront contractual right to end their leases early. For many tenants this can mean the right to call time on a failing business without on-going liability under their lease, or for growing businesses, an opportunity to move to larger premises more aligned with their growing business needs.
 

Landlords are usually reluctant to grant such rights to end the lease early (known as break clauses) given that this means the landlord’s income stream will be cut short and he may be left with vacant premises in a depressed market. As a result, many landlords who give such a right caveat this so that the tenant can only end the lease on an early date if the tenant performs all its lease covenants and pays all its rent up to date. Many leases are drafted on the basis that the tenant will need to pay all of its rent to stand a chance of being able to legally end the lease on the break date. Controversially, this means that even rent which becomes due before the break date but actually relates to a period beyond the break date must be paid by the tenant in order to make its early break date valid. Many high profile and other tenants have found this unfair as there has historically been few ways of claiming back such overpaid rent and service charge unless a specific and detailed provision has been made for this in the lease.


The decision reached last Thursday in the case of Marks and Spencer PLC v BNP Paribas Securities Services Trust Company (Jersey) Limited is an important one for landlords and tenants alike. It means that a provision may be implied even if this is not included in the wording of the original lease: that the tenant will be entitled to a repayment of overpaid rent and service charges, if this relates to a period beyond the date of break. For M&S in this case, a reported £1.1 million was at stake. This case will have far reaching consequences, particularly for landlords; many of whom have seen this overpayment as a way of compensating them for a lost tenant.


Please feel free to ask questions or state your views on this matter in the comment section below.
If you require any advice on a property lease, please get in touch with a member of our property team. Contact Sara Mounsey on: (direct dial) 01756 692 882 or (email) sara.mounsey@awbclaw.co.uk
 


     






Sara Mounsey
Solicitor, Property

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.