Commercial lease – Break clause – Vacant possession – Appellant tenant exercising option to break lease after first year of term provided rent paid up to date and vacant possession given by break date – Works necessary to comply with repairing obligations not completed by break date – Appellant’s workmen remaining on premises for several days thereafter to complete works – Exercise of break clause held to be invalid on grounds of failure to give vacant possession – Whether vacant possession given – Appeal dismissed
The appellant tenant occupied warehouse premises under a lease from the respondent landlord. The lease was renewed in April 2008 for a further term of two years at a rent of £278,000 pa. It contained a tenant’s break clause permitting the appellant to terminate the lease on 3 April 2009 by giving six months’ prior notice to the respondent, provided that the rent was up to date and the appellant had delivered up vacant possession. There was a further option to break the lease at a later date.
In September 2008, the appellant gave notice to break the lease in April 2009. In January 2009, the respondent prepared a terminal schedule of dilapidations. However, this was initially done on an incorrect basis and the issue was not resolved until a meeting between the parties on 1 April 2009. It was agreed on that date that the appellant had substantially complied with its repairing and redecorating obligations, although some outstanding items of repair were identified. Since it would not impossible to carry out those works by the break date, the appellant suggested that it could complete them within the following week, continuing its security cover of the premises in the meantime but returning the keys on the break date. Further communications ensued on that matter and regarding the return of the keys; meanwhile, the necessary repairs were completed by 9 April.
The respondent applied for a declaration that the appellant had not effectively broken the lease in April 2009 because it had failed to give vacant possession on the break date. Allowing the claim, the judge held that the appellant had remained in possession for its own purposes after that date by the continued presence of its workmen and had therefore failed to comply with the requirement to give vacant possession. He found that the respondent had done nothing to waive that failure and rejected the appellant’s argument that a telephone conversation regarding the return of the keys was consistent only with the respondent accepting that the lease was at an end: see [2010] PLSCS 186. The appellant appealed.
Held: The appeal was dismissed.
(1) “Vacant possession” was not a complicated concept in the present context, but meant the same as it did in every domestic and commercial sale in which there was an obligation to give vacant possession on completion. At the moment vacant possession was required to be given, the property had to be empty of people and the purchaser had to be able to assume and enjoy immediate and exclusive possession, occupation and control of it. The property also had to be empty of any remaining chattels that substantially prevented or interfered with the enjoyment of the right of possession of a substantial part it: Cumberland Consolidated Holdings Ltd v Ireland [1946] 1 KB 264 and Legal & General Assurance Society Ltd v Expeditors International (UK) Ltd [2006] EWHC 1008 (Ch); [2007] 1 P&CR 5 considered.
The appellant had not given vacant possession to the respondent on 3 April 2009. Although the repair works benefited the respondent, the appellant did not have to carry them out as a condition of the exercise of the break option. It wanted to complete the works in order to avoid the prospect of a subsequent claim for damages exceeding the cost of performing the works. It had done nothing by midnight on 3 April to show that it was giving up possession. Although it had offered to return the keys, it had not done so. It had maintained the same control of the warehouse as it had prior to the break date. It had remained in occupation and had not therefore given vacant possession. That was so notwithstanding that it would willingly have downed tools and left had the respondent so requested.
The appellant’s proposal to the respondent regarding the completion of the works had been sensible. In substance, it had proposed that it should give possession on 3 April and make a brief return to the warehouse after that date as the respondent’s licensee. However, it had known that, in order not to prejudice the operation of the break option, it needed to obtain the respondent’s agreement to that proposal by 3 April and had not done so. It should have known that, in those circumstances, the only safe course was to move everyone out of the warehouse, including its security guard, and to inform the respondent of that matter and that it would deliver the keys to the respondent’s agent on the same day. It could then have contacted the respondent asking whether it could return to the warehouse as licensee in order to complete the outstanding works. It had not done so, but had instead remained in possession.
(2) The respondent had not waived the failure to give vacant possession on the break date and had made no election between inconsistent rights: Matthews v Smallwood [1910] 1 Ch 777 and Kammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd (No 1) [1971] AC 850 applied. The respondent’s property manager had said that it would arrange for the keys to be collected. In the event, it had not done so, on its solicitor’s advice. A landlord could not, by the mere oral uttering of such words, extinguish a legal estate in a term of years vested in its tenant in the absence of: (i) any writing satisfying section 53(1)(a) of the Law of Property Act 1925; (ii) any consideration moving between the parties; (iii) any acts performed by the appellant in reliance, enabling it to assert that it would have been inequitable for the respondent to go back on the words; or (iv) anything else that might have entitled the appellant to hold the respondent to those words.
Dermot Woolgar (instructed by Franklins Solicitors LLP, of Milton Keynes) appeared for the appellant; John de Waal (instructed by Reed Smith LLP) appeared for the respondent.
Sally Dobson, barrister
