Breaks And Apportionment Of Rent - A Ray Of Light For Tenants?

Introduction and Background

There has recently been a line of cases, most recently PCE Investors Ltd v Cancer Research UK [2012] 2 P&CR 71 and Canonical UK Ltd v TST Millbank LLC [2012] EWHC 3710 (Ch) which have held that, whilst dependent on the precise wording of the lease and the key provisions in question, to be able to comply with a condition in a break clause requiring payment of rent, if the break date falls between rent payment dates, the whole quarter's rent is due and no subsequent apportionment is permitted.

However, Mr Justice Morgan's decision in the case of Marks and Spencer PLC v (1) BNP Paribas Securities Services Trust Company (Jersey) Limited and (2) BNP Paribas Securities Services Trust Company Limited [2013] EWHC 1279 (Ch) is a welcome illustration of both the approach that should be taken by tenants when complying with break conditions as well as the circumstances in which either payments of rent (and other sums) can only be paid up to the break date or overpayments can be recovered after the break has been validly exercised.

The Facts

Marks & Spencer Plc ("M&S") was the tenant and the defendants, both BNP Paribas companies, ("BNP Paribas"), were the landlord of four floors of an office building in Paddington, London, known as "The Point".

M&S' occupation was regulated by four leases with each lease having been granted on identical terms (at least as regards the issues in dispute) and, for the purposes of his judgment, Morgan J considered only the lease in respect of the 3rd floor premises but treated his analysis and conclusions as applying equally to all the leases. Accordingly, this summary focuses only on the implications for the 3rd floor.

The 3rd floor lease was granted from 25 January 2006 to 2 February 2018. M&S however had the benefit of an option to determine the lease on 24 January 2012 (and again on 24 January 2016) that was constructed in the following principal terms:

"8 OPTION TO DETERMINE

8.1 For so long as the Tenant is Marks and Spencer p.l.c. or a Group Company thereof the Tenant may determine this Lease on the First Break Date [i.e. 24 January 2012] by serving on the Landlord written notice on or prior to the First Break Notice Date.

8.3 This lease shall only determine as a result of notice served by the Tenant under [Clause 8.1] if on the break date there are no arrears of Basic Rent or VAT on Basic Rent; and

8.4 This Lease shall only determine as a result of notice served by the Tenant under Clause 8.1 if on or prior to the First Break Date the tenant pays to the landlord the sum of £919,800 plus VAT. 8.6 The Landlord may in its absolute discretion waive compliance with all or any of the conditions or obligations set out in Clause 8.3.

8.7 If the provisions of this clause are complied with then on the Break Date...