Commercial tenants with a ‘vacant possession’ break clause in their lease run the risk of nullifying the termination of the lease by failing to properly remove all their belongings from the premises - even down to internal walls and floor coverings - a recent ruling by the High Court has found.
Break clauses are often conditional upon certain factors, most commonly delivering vacant possession. In Riverside Park Ltd v NHS Property Services Ltd (2016), a break clause was rendered inoperable because the tenant failed to provide vacant possession, a condition under the terms of the tenant’s break clause.
The landlord, Riverside Park, granted NHS Property Services a 10-year lease subject to a tenant right to break the lease at the end of the fifth year. The break was conditional upon the tenant giving vacant possession of the premises to the landlord.
While vacant possession has usually applied to personal items, also known as chattels, rather than the fixtures and fittings that are usually attached to the premises, the landlord argued that floor coverings, wall partitioning and kitchen units that were left were not part of the premises.
No concrete definition of vacant possession
The question before the court was whether these items constituted fixtures and fittings or whether they were chattels. In concluding that the items were chattels, the court held that the failure to remove them rendered the break ineffective, meaning that the vacant possession condition had not been satisfied and the lease remained in full force and effect.
The court also noted that, had the items been classified as fixtures and fittings, the vacant possession would still not have been satisfied as the lease excluded fixtures and fittings from the definition of the ‘premises’ in the lease.
The courts appear to be taking a hard line interpreting what is meant by vacant possession, with the burden of their decisions often falling on unsuspecting tenants. With no concrete definition of vacant possession for tenants to rely on, the case law places a heavy burden on tenants seeking to prove compliance with an obligation to deliver vacant possession.
Tenants should be increasingly cautious in this regard, particularly where break rights and other rights are conditional upon vacant possession.
Kate Nyakecho is an associate in the London office of King & Spalding