Pub tenants warned over break clauses
Last year, M&S challenged whether it could claw back around £1.1m in rent and other charges from its landlord, BNP Paribas Securities Services, after it exercised a break clause and moved out of the premises mid-quarter.
A High Court case ruled that, even though the lease was “silent” in terms of a condition relating to a refund, “a term should be implied” that the landlord was obliged to refund rent paid in advance for the period from the break date up to the end of the quarter.
However, in a highly anticipated decision, the Court of Appeal overturned the ruling last week, stating that the lease did not provide for any refund and it was not appropriate for the court to imply such a term.
Matthew Williamson, real estate partner at Weightmans LLP, said that, in light of the decision, tenants should consider the following points when negotiating break clauses in pub leases:
- Ideally, tenants should seek to ensure that any break clauses are unconditional in new leases. Pre-conditions linked to operational covenants including licensing obligations and event barrelage commitments — if not strictly adhered to — can frustrate the break.
- Where a break is conditional, the tenant should ensure the lease provides that any rent paid in advance for a period after the break date is refunded. It is now clear that the court will not imply such a term.
- Ideally, the refund should be made without any deduction or set-off. Otherwise, if the landlord claims that there are outstanding dilapidations or other liabilities, then the tenant might still find it difficult to recover its money.
