Two recent cases have highlighted the need to be (as ever) very careful when exercising a break clause. A break clause may only be exercised if any conditions attached to it have been satisfied. A break clause will often contain a condition that the tenant must give vacant possession.
In the cases of (1) Riverside Park Limited –v- NHS Property Services Limited  and (2) Secretary of State for Communities and Local Government –v- South Essex College of Further and Higher Education  the two tenants had left partitions in place when the break was exercised.
Partitions are often of a temporary nature and not one that could be called a fixed item. These were however of sufficiently size to prevent the landlords claiming lack of full enjoyment of the properties. This was held as the tenant’s failure to yield up with vacant possession and to comply with the conditions to their break clauses, meaning that their leases had not terminated on the break date.
Case 1 Riverside Park Limited -v- NHS Property Services Limited
The Lease contained a tenant’s right to terminate the lease on 24 September 2013, on condition:
- that the tenant served at least six months’ notice of the intention to break, and
- gave vacant possession on or before 24 September 2013 (break date)
The tenant intended that the Lease would terminate on the break date. However, at the break date, the tenant had not removed the partitions. The landlord argued that vacant possession had not been given, and therefore the break notice was ineffective.
From the agreements presented by the landlord and tenant the court considered the following points:-
- are the partitions chattels (in which case they did not form part of the premises), or tenant’s fixtures.
- if the partitions are chattels, did they interference to such a degree that vacant possession was not possible.
- If are the partitions were tenant’s fixtures, whether the tenant was obliged to remove them to give vacant possession.
The High Court decided in favour of the Landlord.
The court did consider that the partitions were standard demountable partitions. The configuration of the partitioning resulted in a series of small offices, which was to benefit the tenant. A series of small offices was not what tenants generally looked for nowadays. Due to the nature of the offices created the result was that the partitions did interference to such a degree that vacant possession was not possible.
The case was of course on the particular points raised in the matter. There was a counter argument by the tenant in that there was also a licence for alterations, including the installation of partitions, kitchen units and an alarm. The tenant had to reinstate the premises if required by the landlord at the end of the lease or if the licence were terminated.
Case 2 Secretary of state for Communities and Local Government -v- South Essex College of further and Higher Education
Here the arguments were indeed much the same and also involved additional items left at the property by the tenant. The tenant left internal non-structural partitions together with other chattels such as a photocopier, computer screens and a reception desk.
The tenant also did not hand back its key fobs.
The tenant argued that:
- the items that’s left behind were readily movable and did not prejudice the Landlord’s ability to retake possession of the premises; and
- the partitions were items for reinstatement as part of a dilapidations claim.
The High Court decided in favour of the Landlord.
The court considered the tenant’s actions were not sufficient to show “to the outside world” that it had vacated the premises. The tenant had not held a handover meeting or held any discussion with the land to agree repairs or removal of items (in particular the keys) its actions constituted abandonment rather than leaving with vacant possession.
The Court did considered the other items (a photocopier, computer screens and a reception desk) without the partitions. It held that these items were also chattels, but as they were minor in nature, had they been left in place without the partitioning, vacant possession might have ben accepted to have occurred!
The conclusion is that tenants and landlord must be very careful as to what is required of them in order to give vacant possession. A meeting with the landlord to agree the items is key! A clear dialogue which should be recorded in writing will ensure that all parties have a full understanding of what is required of them.
Partitioning in this case was held to be a chattel (although debateable and certainly not, one would assume is the case) and as such care must be taken to ensure that is agreed to stay or be removed.
100% accuracy is a must the implications for a tenant and landlord can be very serious. If the tenant is unable to claim the break they will remain liable for the remainder of the lease. This can impact horrendously on a tenant if by then the tenant has taken a lease of new premises and they might even have relocated by then.
From a landlord’s perspective, if they are unable to claim the break this could hamper any redevelopment, and could mean expensive negotiations to buy a surrender of the on-going lease.