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break rights and overpayments – case law update

14 May 2014

Do you remember the Marks and Spencer Plc v BNP Paribas case last year? M&S had a break right which was conditional on there being no arrears at the break date (as well as paying a financial penalty). Having paid the full quarter’s rents to exercise the break right, the judge implied a term that the landlord must reimburse the tenant for all advance payments (about £1.1m in total).

Perhaps not surprisingly, this decision has today been overturned by the Court of Appeal. No such term is to be implied and the loss must lie where it falls. It is therefore crucial when acting for a tenant with a break clause to provide expressly in the heads of terms and lease that, following the exercise of the break clause, the landlord must reimburse the tenant for all overpayments. Draft with care!

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