Marks and Spencer Plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd & Anor

Where a commercial lease requires rent to be paid quarterly in advance, a tenant must pay the full instalment when, at the payment date, a conditional break may or may not operate. If the break subsequently takes effect mid-quarter, the lease may nevertheless contain an implied term requiring repayment of the excess attributable to the period after termination. The implication question is whether the term states what the lease, read as a whole against its background, would reasonably be understood to mean. It is not enough that the term would be fair or reasonable. The same approach may require apportionment of insurance payments and repayment of service-charge credits. Restitution for total failure of consideration ordinarily does not permit time apportionment of a single, indivisible payment.

The claimant occupied four office floors under substantially identical leases. It exercised a conditional tenant’s break clause, and the leases ended on 24 January 2012 after the claimant had paid a full quarter’s rent, car park licence fee and service charge, and an annual insurance contribution. It sought repayment of amounts attributable to the period after termination, together with service-charge credits. The defendants denied liability and relied on a settlement agreement.

The principal issues were whether repayment followed from the express lease terms, an implied term, or restitution; how the insurance and service-charge provisions operated; and whether the settlement agreement released the claimant’s claims.

1. Quarterly rent. The lease required a full quarter’s rent on 25 December 2011 because, at that date, it was uncertain whether the conditional break would take effect. The words providing for rent proportionately for part of a year did not themselves create an express right to repayment.
2. Implied term. Applying A.G. of Belize v Belize Telecom Ltd [2009] 1 WLR 1988, the court asks whether the proposed term spells out what the instrument, read as a whole against the relevant background, would reasonably be understood to mean. The suggested term must be reasonable, but fairness alone is insufficient. Here, the lease’s provisions for rent by instalments, the apportionment language, the payment of one year’s rent as the break premium, and the distinction between rent due for the term and rent after it made the term sufficiently clear. A term was implied requiring repayment of the rent attributable to the period after 24 January 2012.
3. The same conclusion applied to the car park licence fee. A daily apportionment was implicit in its being an annual sum payable by instalments.
4. Forfeiture distinguished. The court would not imply a similar repayment term following forfeiture, because Ellis v Rowbotham [1900] 1 QB 740 and the authorities following it established the tenant’s liability for the full instalment. A tenant’s break clause was materially different, particularly where a substantial break payment compensated the landlord for the loss of the income stream.
5. Restitution. The claim based on total failure of consideration failed. A single payment could not ordinarily be divided by time merely because possession ended during the payment period. The court declined to extend Wehner v Dene Steam Shipping Co [1905] 2 KB 92 and did not find Ocelota Ltd v Water Administration Ministerial Corporation [2000] NSWSC 370 persuasive in this context.
6. Insurance and service charge. The insurance provisions required payment only for insurance during the term, so the annual premium was to be apportioned daily and the excess repaid. The service-charge accounting machinery survived termination. The claimant was entitled to the 2011 credit and could receive the 2012 credit once the outstanding procedures were completed.
7. Settlement. The agreement settled claims by the defendants against the claimant. It did not, on its wording or background, release claims by the claimant. The claimant was therefore entitled to repayment of the relevant rent, licence-fee and insurance sums, and potentially the service-charge sums.