Vacant possession and break clauses
In the recent case of Riverside Park Ltd v NHS Property Services Ltd the Court was required to decide whether a tenant had complied with its obligation to give vacant possession of a property in order to exercise a break clause in a lease.
A break clause may only be exercised when any conditions referred to in it have been fully complied with. A break clause will usually contain a condition that the tenant must give vacant possession.
In this case when the lease was granted, the premises were open plan. The tenant later carried out various works, which included the installation of partitions to make smaller offices. The High Court had to establish whether the works carried out by the tenant were “chattels” (moveable assets) or “fixtures”.
“Fixtures” are items attached to the land by the tenant or a predecessor for the purpose of its trade or business and which are capable of removal without causing substantial damage to the land and without the goods losing their essential utility. They may be removed by the tenant during the term, but not after it has come to an end (unless there is a contrary agreement between the landlord and tenant).
If the tenant’s alterations to the property are “chattels” they must be removed by the tenant in order for vacant possession to be given. However, if they are “fixtures”, the tenant my leave the alterations and the obligation to give vacant possession will have been satisfied.
The High Court held that the partitions were chattels. It took into account:
- That the partitions were standard demountable partitions.
- The object and purpose of the occupation of the property.
- That the structure of the partitioning was unique and resulted in a series of small offices, which benefited this particular tenant rather than affording a lasting improvement to the premises.
- The alterations substantially prevented or interfered with the landlord’s right of possession.
As a result, the Court concluded that, by leaving the partitions in place after seeking to exercise a break clause, the tenant had not given vacant possession and so the break had not been effectively operated.
The key point to take away from this case is that tenants must take care to comply fully with any and all conditions when exercising break rights, as these are strictly interpreted by the Courts. Failure to comply fully will mean the lease will continue and rent will continue to be payable until the next available break date or until the end of the lease term.
Toby Pound is a partner and head of the Property department at Barker Gotelee.
Suffolk Property Solicitors – for more information on our range of legal services, please call the team on 01473 611211 or email [email protected]
