The consequences of not giving vacant possession following exercise of a tenant's break option
A break clause can only be properly exercised if any conditions attached to it have been satisfied; the break clause will often contain a condition that the tenant must give vacant possession. Failure to ensure that the property is ‘vacant’ will mean that the break is not effective and that the Lease continues.
In Riverside Park Ltd v NHS Property Services Ltd the High Court considered whether a tenant, which had exercised its break right, had complied with its obligation to give vacant possession.
On 24 September 2008, the landlord granted a ten year lease of first floor premises to Wirral Primary Care Trust. At the time that the Lease was granted, the premises were open plan.
The Lease contained a tenant's right to terminate the lease on 24 September 2013, on condition that it served at least six months' notice of the intention to break and gave vacant possession on or before 24 September 2013 (the break date).
The landlord and Wirrall PCT also entered into a licence for alterations which permitted the tenant to carry out works which included the installation of partitions, kitchen units, floor coverings, window blinds and an intruder alarm. The Licence also provided that the tenant would reinstate the premises.
On 18 March 2013, the PCT served notice on the landlord exercising the break option. In April 2013 the lease became vested in NHS Property Services Ltd (the tenant). The tenant intended that the Lease would terminate on the break date. However, at the break date, the tenant had not removed the works and the landlord argued that vacant possession had not been given, and therefore the break notice was ineffective.
The tenant argued that the works were tenant's fixtures which had been integrated into the premises; there was a right but no obligation to remove tenant's fixtures. If the works were chattels, it argued that vacant possession had been given because their presence did not substantially prevent or interfere with the enjoyment of the premises.
The Court decided that the partitions were chattels. It also accepted the expert evidence that the configuration of the partitioning was ‘unique’ and that it resulted in a series of small offices which was ‘not what prospective tenants generally look for nowadays’. The Court also accepted that this configuration was to benefit the tenant rather than affording a lasting improvement to the premises. Further it said that the very fact that the tenant chose to erect demountable partitioning and not to affix the partitioning to the structure suggested that it was seen by the tenant as temporary (and therefore designed to be removed). The tenant’s failure to remove the partitions and indeed other items meant that the tenant had not given vacant possession.
This case reminds tenants of the importance of checking the terms of the Lease and any licence for alterations carefully and ensuring that it complies fully comply with any conditions for exercising break rights. Failure to do so will mean that the lease will continue to exist.
For further help or advice, please contact Johanne Spittle
Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.