When drafting any break clause in a lease/tenancy, tenants are well advised to avoid any break clause being conditional on the requirement for them to provide vacant possession. This is because there have been a number of cases in the courts debating what is meant by “vacant possession”, and the interpretation given by the courts has extended beyond just the tenant giving up the property free of occupation. In some cases, for example, it has included the requirement to remove partitioning, with a failure to do so resulting in the break notice being invalid and the lease continuing. This can be disastrous for tenants, who may have already signed up for a new lease on alternative premises and are then faced with paying rent for two premises.
The recent case of Capitol Park Leeds plc v Global Radio Serviced Ltd [2021] however provides landlords and tenants with some useful guidance on what is meant by “vacant possession”.
The facts of the matter
The case involved a break clause which was conditional on the tenant “providing vacant possession of the Premises”. The definition of Premises within the lease included both the original building and all fixtures and fittings at the Premises whenever fixed.
The tenant had stripped out of the unit a range of items including ceiling grids and tiles, fire barriers, floor finishes, pipework, lighting, smoke detection systems and radiators.
The evidence showed that these items had been part of the original base build specification and so were landlord’s fixtures or elements of the building itself. The landlord therefore argued that by removing significant elements of the building or fixtures, the tenant had failed to give vacant possession of the Premises and therefore the break had not been validly exercised and the lease continued.
Court of Appeal
In the High Court, the Judge agreed with the landlord. On appeal, however, the Court of Appeal reversed that decision and held that the requirement to provide vacant possession only required the tenant to return the Premises to the landlord free of people, chattels and legal interests and was not concerned with the physical state of the Premises.
The break clause made no mention of repair or condition, which the yield up provisions in the lease did; the landlord could still therefore pursue the tenant for a claim for damages for their failure to comply with their repairing obligations.
The Court also said that although previous case law stipulated that the conditions prescribed in a break clause must be strictly complied with, this does not mean that the clause must be construed strictly or, in particular, adversely to the tenant. The break notice was therefore valid and the landlord could pursue a claim for dilapidations for breaches of covenant for any losses suffered.
Right first time
The case will offer useful leverage to tenants whose landlords are currently disputing the validity of a break clause due to their alleged failure to provide vacant possession, and to those tenants who already have a lease where the break clause is conditional on the requirement to give vacant possession.
However, given that the courts have not consistently interpreted the meaning of vacant possession yet, tenants should still push for any break clauses not to be conditional on the requirement to give vacant possession at all; alternative wording should be agreed so this never becomes an issue.