Breaking up is hard to do

As the property group’s sole trainee, I am given tasks from both the commercial and residential sub-groups.  Recently, I was tasked with reviewing and summarising the terms of a tenant break clause for a client who wanted to exercise it to end their lease early.

A key issue was that the lease did not include an express provision for the refund of rent paid in advance of the break date.  The tenant paid on a quarterly basis and the break date fell just after a quarter day.  It is well established law that, for any such refund, there must be an express provision for repayment by apportionment of rent paid in advance. 

At the same time that I was researching this area, the Supreme Court handed down judgment in the long-running case of Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd and another [2015] UKSC 72 (2 December 2015), which confirmed this position.

Background

Marks and Spencer (“M&S”) was the tenant under four identical subleases running from 25 January 2006 to 2 February 2018.  The landlord was BNP Paribas Securities Services Trust Company (“BNP Paribas”).  Rent was payable on a quarterly basis and the leases contained a provision for a tenant’s break clause if M&S gave BNP Paribas 6 months’ prior written notice before the set break dates.  For the break clause to take effect, there had to be no rent arrears and M&S were to pay the landlord one year’s rent.  Crucially, there was no provision in the leases requiring BNP Paribas to refund any overpayment of rent at the break date. 

M&S served a break notice on the landlord to determine the lease on 24 January 2012 and subsequently paid the quarterly rent for the period 25 December 2011 to 24 March 2012 and the one year’s rent, as required.  Consequently the break notice was effective and the lease determined on 24 January 2012. 

M&S then brought a claim against BNP Paribas primarily for the recovery of the overpayment of rent for the period between the effective break date, 24 January 2012, and the next quarter day, 25 March 2012.  M&S was successful at first instance, but the Court of Appeal reversed the decision.  M&S appealed to the Supreme Court.

The Supreme Court Judgment

The Supreme Court upheld the Court of Appeal’s decision.  One of M&S’s main arguments was that such a term was implied by certain wording in the lease.  However, the Supreme Court confirmed that a term should only be implied if required for business efficacy or if it passed the officious bystander test, i.e. the implied term is so obvious that it goes without saying.  

In this case, the parties had carefully and fully considered the content of the leases, including the provisions of the break clause.  Other provisions providing for payments between the parties on the operation of the break clause highlighted this careful consideration and therefore it would be inappropriate for the court to imply any further terms. 

The Lords additionally looked at the apportionment of rent payable in advance and confirmed that, unless there is express provision for this, any overpayment of rent was not repayable except under exceptional circumstances.  The Lords pointed out that this principle had been the same when the leases were entered into by the parties and that the leases were both full and professionally drafted. 

This judgment serves as a reminder of the existing law relating to repayment of rent paid in advance and the importance of providing for this expressly in the lease to ensure that the tenant is able to recover on the operation of a break clause.

Posted by Katherine Yu, trainee in the property practice group.

Katherine started her training contract with B P Collins in May 2015, after joining the firm as a paralegal in April 2015. Katherine graduated from the University of St Andrews with a joint honours degree in International Relations and Modern History. She went on to study the Graduate Diploma in Law at the College of Law and the Legal Practice Course at BPP in Holborn.

As the saying goes - time flies...

After two years of being a trainee, I’ve finally qualified as a solicitor! It's the perfect time to reflect on my training contract here at B P Collins and give an insight into my experiences.

When I started in September 2013, I was repeatedly told that two years would “fly by”. I didn’t think it would, as two years sounds like a long time. But like anything, whether it’s three years at university or a Man v Food-style eating challenge, we have a tendency to split big tasks into manageable chunks. And with a training contract, moving to new practice groups every few months can feel like you’re starting a new job each time.

Each practice group has new work, new colleagues, new clients and different ways of doing things. Some are open plan, others individual offices. Far from daunting, I found this really refreshing.

“When you think of a training contract as five seats, rather than two years, it really does fly by.”

I can never say I got bored or even too comfortable, and I was always kept on my toes (Michael Jackson would have been proud).

Let's start at the beginning as a fresh-faced trainee in my first seat - property. I very much enjoyed property; I actually think it should be a compulsory seat for trainee solicitors, whichever firm you're in. It's amazingly pervasive as property-related issues crop up in nearly every area of law.

My time in property was also the most eye-opening. I was thrown into the deep end as the practice group was very busy at the time, and I also had the benefit of returning for a second seat later in my contract.

Upon joining, I quickly grasped the nature of residential and commercial sales and purchases, working on commercial leases on behalf of both the tenant and landlord and all manner of Land Registry applications.

“In my view, property is the best example of working independently.”

Of course, assistance was always available whenever needed, but I enjoyed using my initiative to progress a transaction. There are excellent opportunities for client contact and you would often be a client's first port of call.   

Corporate and commercial (CoCom) was my second seat. I always enjoyed corporate work, having opted for the private acquisitions elective on the LPC and, back in May 2014, I wrote a blog about my seat in CoCom. I met fascinating business people and assisted in a wide range of transactions, including acting for a 3D modelling and printing company in its share sale, advising yacht and rowing clubs in their tax/charity statuses, and amending manufacturing and licensing agreements concerning a global film franchise.

If ever you want a great insight into the formation of companies, their regulatory requirements and how businesses run, then CoCom is an excellent seat to do so. I also saw the collaboration between solicitors in several practice groups working on a single corporate transaction.

I then went back to property for my third seat before completing my training contract with two seats in litigation and dispute resolution. My time here was split between property litigation and general civil litigation. By this time, I was seen as an 'experienced' trainee ("where's my walking stick?!") and therefore had a brilliant level of responsibility, often handling smaller pieces of litigation on my own or being given sole responsibility of a substantial task within larger, more complex proceedings.

In property litigation, I assisted the supervising fee earner in a claim at the First-Tier Tribunal of the Property Chamber involving leaseholders of 36 residential properties and our client as landlord/freeholder (which ties back into the importance of a seat in property!). In general litigation I had a hugely varied workload with, for example, contested probate claims, contractual disputes and unfair prejudice petitions.

It was general litigation where I decided to qualify and (luckily!) the practice group was able to keep me and fellow trainee Rebecca Mitchell as newly-qualified solicitors. Litigation seems to suit me.

“I enjoy assisting clients in resolving disputes they or their businesses may have, to try and think outside the box with the best solution you can find and the excitement of litigation's twists and turns.”

Your training contract, wherever it is, is likely to be career-defining. I learnt not to see it as a long journey to qualification, but to consider each seat as a new stage, or even a new job. Enjoy it while it lasts – it'll fly by.

Posted by Rajiv Malhotra, newly qualified associate in the litigation and dispute resolution practice group.

Having graduated with LLB (Hons) from the University of Birmingham before completing the LPC at BPP Law School, Rajiv completed his training contract with B P Collins. Upon qualification, he joined the litigation and dispute resolution team as an associate in September 2015.

Obsession with Concession (Agreements)

Legal update seminars aside, airports are probably the most exciting places in the world! And what's the number one thing to do in that exciting place? It's got to be duty free shopping. Nothing is more thrilling than purchasing your seventh pair of overpriced sunglasses for that long-awaited stag weekend in Tallinn. You know you don't need them, but it's duty free! You have to spend to save! Well, millions of other poor souls think just like us, which is why it's big business for retailers. So big, in fact, that a retailer will enter into a particularly onerous agreement with an airport just to have a concession there.

You will often find that when a retailer enters into a concession agreement with an airport, or a huge shopping centre, it pretty much has to agree to their standard terms and the retailer will have very little bargaining power. Although this can be frustrating for the lawyer trying to negotiate on their behalf, there is often very little that can be done, the retailer has to either take it or leave it.

A concession agreement is essentially a licence, rather than a lease, there is no landlord and tenant relationship (and so any statute that is designed to protect a tenant will probably not apply) and the 'concessionaire' has no right on the land. You are simply given the right to trade on someone else's property.

I was recently asked to interpret some clauses in a three-year concession agreement that our client had entered into with an airport. The client is a very well-known clothing brand. Whilst the clauses mainly related to VAT (I can sense you're dangerously close to the edge of your seat!) the agreement as a whole was really interesting.

I was amazed to see how onerous it was. For example, not only was the client obliged to pay an initial fee for entering into the agreement, but the airport also takes approximately 25% from their sales revenue. This percentage remains the same for all three years, but the minimum amount that the airport was guaranteed would increase, from £229,000 in year 1 to £270,000 in year 3.

On top of the prescribed trading week and minimum trading hours; the client was required to keep very detailed sales and footfall data which the airport had the right to inspect on demand. They are  obliged to show the duty free price of its merchandise and compare it to the high street price, clearly stating the amount that customers save; at its own cost and they had to operate the 'Shop and Drop' scheme (where your shopping mysteriously and beautifully appears at your departure gate waiting for you to collect it).

It doesn't stop there, as the client has to implement any of the airport's points-based loyalty schemes, then should the airport ever create a Facebook page, they are contractually obliged to 'like' it moreover if the airport ever create a Twitter account, they had to 'follow' it (the latter two are real, by the way). I could go on, but you get the gist.

Whether you're a Paralegal, Trainee, Solicitor or Partner acting on behalf of a business, it's essential to understand the commercial realities that clients face. Our client knew it had very little bargaining power but it relied on its own calculations and projected sales to decide whether such a restrictive agreement would be cost-effective.

It was only when I was asked to work on this concession agreement that I fully realised how this was one of the less obvious examples of a really interesting legal relationship coupled with sound commercial judgement. From a lawyer's point of view, it also shows how important it is not to lose sight of the client's commercial objectives.

When every part of your legal brain wants to shout "NO! Don't sign, it's a terrible contract" you have to respect that ultimately, it is the client's decision. Our role is to highlight the terms of the contract and ensure the client is fully informed before deciding whether to enter into it.

So the next time you're in the departure lounge coating yourself with perfume testers, it may be worth considering what's happening in the background. There's usually a legal and commercial reason for everything.   

Posted by Rajiv Malhotra, trainee in the property practice.

      

Rajiv graduated with LLB (Hons) from the University of Birmingham in 2007, before completing the Legal Practice Certificate at BPP Law School in London. After acting as a Legal Assistant with a large Watford firm, Rajiv joined B P Collins in April 2012 as a paralegal before beginning his training contract in September 2013.

The importance of drafting an effective break clause

In today's market, commercial property tenants are continually looking for a better deal to protect their future business interests. A business can change significantly over a small period of time therefore tenants need peace of mind that they have a ‘get out clause’ if ever needed.

What happens when a tenant is tied into a lease for 10 years or more, but their business has changed causing them to move premises or even cease trading? You will often find that a carefully drafted lease will include a break clause, enabling the tenant to bring the lease to an end part way through the agreed term.

When I was asked to draft a break notice for a tenant halfway through the term of the lease, I thought it would be a relatively simple task, taking only a small amount of time. However, when I realised what was at stake for the client, I knew it wasn’t a straightforward task.

The consequences of an invalid break notice can cause the tenant to be tied into the current lease for the remainder of the term, or until the next break date (if there is one of course – there may not be!). This has huge cost implications for the tenant, particularly if they have already agreed to a new lease at different premises. A tenant could face paying rent on two premises for a period of five years plus - not the situation the tenant's lawyer wants to be faced with!

Even when a lease has a break clause, oversight of a minor point can cause the tenant to be tied in for the remainder of the term. For example, a break clause may insist on vacant possession, therefore, if any items are left behind (even a desk), the tenant may still be tied to the lease. Therefore, if you are the tenant or the landlord, a carefully drafted break clause is extremely important. A poorly drafted break clause could break the tenant's business.

The commercial property group at B P Collins LLP can assist commercial tenants and landlords with negotiating, drafting and implementing break clauses. If ever a tenant or landlord finds themselves in the sticky situation where they have a fight on their hands in relation to service of the break notice, the property litigation group has specialist knowledge in this area too and are on hand to advise. 

Posted by Gemma Hunter, trainee in the property practice group.



Gemma started her training contract with the firm in October 2011 having studied Law and Criminolgy LLB at the University of Sheffield and the LPC at the College of Law, Bloomsbury.