Sorry law students — even more land law to learn
The Supreme Court handed down a judgment this morning that shows how getting your land law wrong can end up costing a fortune.
The case concerned a dispute between high street giants Marks & Spencer (M&S) and their landlord BNP Paribas (BNP). M&S wanted to stop leasing part of a building before their lease was due to end.
And which store will achieve immortality in the law reports? None of them, alas: the case was about their head office at Paddington Basin, London.
In a very, very brief nutshell, the dispute centered on the law of implied contract terms, and specifically whether M&S was entitled to the repayment of rent paid to BNP after a break notice was served.
The case has had its ups and downs during its momentous journey through the courts. The High Court held that M&S were entitled to the money; the Court of Appeal said that they weren’t.
But M&S wouldn’t back down. The supermarket took its appeal to the highest court in the land, where it was heard in October. Representing M&S was Falcon Chambers’ Guy Fetherstonhaugh QC, who was recently caught up in a media controversy involving the BPTC scholarship, and Kester Lees. Nicholas Dowding QC and Mark Sefton, also at Falcon Chambers, acted for BNP.
This morning, the Supreme Court — comprising Lords Neuberger, Clarke, Sumption, Carnwarth and Hodge — finally settled the score. And it’s M&S that lost out this time.
Unanimously dismissing their appeal, the court held that there was no implied term because one was not strictly necessary to make the contract workable. The test (here we go, land law students) is whether, without the term, the contract would lack commercial or practical coherence — and in this case the court thought it wouldn’t.
And while the whole thing sounds like one big tricky problem question, it’s pretty important.
Mayer Brown partner Mark Stefanini, speaking before much anticipated judgment was handed down, explained:
The way in which the Supreme Court applies this test will have consequences for a wide range of contractual disputes involving implied terms.
Multinational firm Fieldfisher seem to be particularly enthused by the case, calling it a “very significant development for businesses across all industries”.
Before the result broke, its property litigation team took to Twitter to express their excitement:
Waiting with baited breath for the Supreme Court's judgment in the dispute between M&S and its former landlord BNP Paribas #M&S
— Fieldfisher Prop Lit (@FieldfisherProp) December 2, 2015
So were we Fieldfisher, so were we…
And when judgment first broke this morning, whoever is in charge of the team’s Twitter feed was having an absolute field (fisher) day.
BREAKING: M&S appeal dismissed by Supreme Court
— Fieldfisher Prop Lit (@FieldfisherProp) December 2, 2015
Jokes aside, their tweets do provide a key insight into how the decision has changed the law.
Reading the Supreme Court judgment in M&S – some criticism of previous approach to implied terms. Reasonableness not enough, must be obvious
— Fieldfisher Prop Lit (@FieldfisherProp) December 2, 2015
Jonathan Warren, managing associate at Mishcon de Reya, thinks the case is one for land law students to swat up on:
In our view this case has an important impact upon on both the areas of landlord and tenant law and contract law. On the narrow issue of break clauses and rent apportionments it upholds the law that has stood since 1900: that rent payable in advance is not apportionable. Therefore tenants need to be very careful about agreeing when a break date in a lease falls.
And, first years, it doesn’t look like you’re off the hook either. Contract law is likely to be impacted by the judgment as well.
Warren added:
On a wider level this case reinforces the current judicial trend against implying in terms into a contract unnecessarily. The court has confirmed and re-stated that a term will only be implied into a contract if it satisfies the test of business necessity or it is so obvious that it goes without saying.
Owen Talfan Davies, real estate litigation partner at Fieldfisher, explained that the judgment was not just about property.
Whilst the case provides a greater degree of certainty in respect of a tenant’s liability to pay rents at the end of a lease, the Supreme Court’s decision has a much wider application as regards what terms the court may imply into a contract as a matter of necessity, and therefore the decision has far greater scope than simply dealing with the law relating to commercial property.
He continued:
This will, of course, be of scant consolation to M&S who, in addition to not receiving a repayment of the rent paid for the period following the termination of leases at their former Paddington Basin offices, will now face a very substantial legal bill.