Blog: Break clauses in commercial leases, By James Norton2nd June 2013

Break clauses in commercial leases are a contentious issue for commercial landlords and tenants. Many break clauses are subject to stringent conditions. Case law shows us that landlords will enforce these conditions come hell or high water. Logically this makes sense. A commercial landlord does not want to be faced with an empty property subject to empty rates with no rent paying tenant(s). Thus, break clauses have traditionally been loaded in the landlord’s favour. They are a weapon in the landlord’s armoury that can (and have) been used to thwart the attempts of a departing tenant. The decision in Marks and Spencer v BNP Paribas Trust Company (M & S v BNPPSTC) may well redress the balance in favour of the tenant.

First the facts. The case involves four floors in a building in Paddington, London. The floors were let under four separate sub-underleases. The break clause was subject to two conditions:

There being no arrears of rent at the break date
Payment of a sum equivalent to one year’s rent

The Tenant duly paid a sum equivalent to one year’s rent. The central issue is this: could the Tenant, in the absence of an express term in the Lease, claim any overpaid sums for a period after the break date? The general rule is that a Tenant must pay a full quarter’s rent even if the break occurs half way throughout that period. Could the Tenant reclaim any sums paid relating to the post break period?

Mr Justice Morgan held that in the absence of an express term in the Lease, a term should be implied allowing the Tenant to recover any post break sums that had been paid. On the face of it, this would give comfort to other Tenants who assert that they too are entitled to recover post break sums by means of an implied term. However, this case is particular on its facts. Mr Justice Morgan was influenced by two facts in coming to the conclusion that a term should be implied. The following was relevant in his decision:

• The fact that the rent was paid in installments
• The one year premium would appear to indicate that the parties had agreed to compensation should the lease be broken half way through the term. Mr Justice Morgan stated that ‘the provision shows that the parties applied their minds to the compensation, which the lessor should receive for the fact that after the break date the lessor would have vacant possession rather than an income stream under a continuing lease.’

In conclusion the above would provide welcome relief to commercial Tenants. However, as explained, M & S is particular on its facts and it does not follow that this case can be applied to every commercial lease. 

About the author

James Norton is a paralegal at a top 100 firm and an aspiring lawyer with a passion for commercial property law. He writes a regular blog on the latest legal (and other) developments in commercial property law at: http://proplawyer.blogspot.co.uk/