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Can rent be reclaimed after a break clause?

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A recent Supreme Court ruling on break clause provisions exercised part way through leases means that tenants should seek advice before agreeing terms. Nicola Beneduce, property lawyer at Harrison Drury, examines the issues.

So why it is vital to have precise wording in your break clause?

Tenants who exercise a break in their lease cannot reclaim any rent. This includes insurance rent and service charges as well as other sums payable under a lease which has been paid upfront if terms have not been specifically included in the lease to allow for a refund upon exercising the break provisions.

The decision was made by the Supreme Court when it dismissed an appeal by Marks & Spencer. The ruling means the high street retailer’s former landlord can keep rent paid in advance for a period after Marks & Spencer’s break date.

The news is clearly disappointing for tenants, although it does provide some clarity in a grey area of property law. It also underscores the need for tenants to negotiate robust break options and make sure the documentation is unambiguous at the outset.

The legal ruling on break clauses and over payment of rent

The case was originally heard in the High Court and ruled that Marks & Spencer was entitled to a rent refund. This was welcomed by tenants because leases often contain break clauses that enables them to end the agreement part way through a contractual rental period.

M&S

However, the Court of Appeal overturned the decision, ruling that tenants would only be entitled to a refund if the lease contained specific wording to that effect. This ruling was subsequently upheld by the Supreme Court.

Why professional advice is essential for tenants

The upshot of the decision is that tenants should only agree to a break option that explicitly enables them to claim a refund, or if the break date coincides with the last day of a quarterly payment cycle.

Even if a tenant has not secured such terms and is looking to trigger a break option that requires rent to be paid upfront, it is important to pay so the break is not invalidated. This is because an over payment of a part quarter’s rent will still be much less than rent to the end of the contractual term.

It is yet another reminder that tenants are strongly advised to speak to a commercial property lawyer before exercising a break option in their lease.

For more information on exercising a break clause in a commercial lease, or to discuss any other commercial property matter, contact Nicola in our team of professional services lawyers on 01772 258321.


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