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Where a break clause is conditional upon vacant possession, it is essential that careful consideration of the lease terms and a thorough survey of the premises in its existing condition are undertaken, well in advance of the break date.
Here we look at two contrasting cases where break clauses failed and the leases have continued due to non-compliance with the vacant possession conditions of the break clause:
A case of 'Too Much'
Capitol Park Leeds PLC v Global Radio Services (2020)
The break clause was conditional upon the premises being handed back on the break date with vacant possession. The tenant instructed a contractor to commence works to reinstate the premises but then entered into surrender negotiations with the landlord and instructed the contractor to stop work.
The surrender negotiations failed to reach an agreement and the tenant handed back the premises as a shell without the original fittings including suspended ceilings, radiators, lighting and other M&E.
The Landlord argued that the Tenant had failed to deliver up the premises as defined by the lease.
The lease defined the premises as 'including the fixtures and fittings'.
By stripping out the Landlords fixtures and fittings the tenant had not handed back the premises as defined in the lease. The premises were handed back with a substantial impediment to the Landlords enjoyment of the premises.
The tenant therefore failed to comply with the vacant possession condition of the break clause and the lease continued.
A case of 'Not Enough'
Riverside Park Limited v NHS Property Services Limited (2016)
The office premises were let to the tenant as open plan. There was an option to break the lease at the 5th year which was conditional upon vacant possession being given.
No works were undertaken by the tenant prior to the break date and the tenant left behind a large amount of partitioning, an activated intruder alarm, kitchen units, floor coverings and failed to return a number of key fobs.
The landlord claimed that the break clause had failed because of the chattels that remained within the premises.
The tenant claimed that the items left behind were in fact not chattels but were fixtures installed under a Licence for Alterations.
The main focus of the judge was on the partitions and whether they were chattels. In this instance, the partitions were demountable and could be easily removed without causing damage and were therefore considered to be chattels. The judge also stated that even if the works were fixtures, the lease excluded tenants fixtures so the tenant had not yielded up the premises with vacant possession.
Summary
The above shows the two contrasting cases and that early consideration of what works may be required to comply with a vacant possession break clause is vital. Below is a summary of how to deal with vacant possession in an ideal scenario:
Undertake a dilapidations assessment at least 12 months prior to a break date (This is dependant on the size of the premises, more time is premises are large).
Ensure the dilapidations assessment identifies items of dilapidations and works required for vacant possession.
Factor in time for any vacant possession works to be undertaken prior to the break date.
Ensure close liaison between the surveyor, solicitor and client.
If unsure of which works to undertake, write to the landlord informing the landlord of which works you plan to undertake to give them an opportunity to review.
Ensure the premises are fully vacated prior to the break date with no chattels (possibly tenants fixtures, depending on the lease definitions).
Ensure it's agreed with the landlord how the premises will be handed back ie. return keys to landlords registered address or meet with landlord on break date, or both!
For further information or to discuss a break clause please contact Kevin Murrell on 020 7101 4167
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