Landlord and tenant – Break clause – Vacant possession – Defendant giving notice to terminate lease pursuant to break clause – Break clause requiring vacant possession of the premises to be given on break date – Defendant not handing over keys or door and alarm codes and leaving partitions and chattels in place – Claimant disputing that break clause validly exercised – Whether vacant possession given – Claim allowed
The claimant was the landlord and the defendant was the tenant under a lease of commercial premises on the ground floor of a multi-let building in Grays, Essex, for a term of 11 years to September 2016. The defendant provided educational services from the premises, which, after taking the lease, it had divided up by erecting partitioning to create an admin area, a server room and six teaching rooms.
In September 2012, the defendant purported to terminate the tenancy pursuant to a notice that it had previously given to exercise a break clause in the lease. The claimant asserted that the break clause had not been effectively exercised in accordance with its terms owing to a failure by the defendant to give “vacant possession… of the whole of the premises” on the relevant break date.
There had been no meeting between the parties in order to give up possession and the defendant had not handed over any keys, door codes or alarm codes. The internal partitioning and reception desks remained in place, as did various chattels including computer screens, a photocopier with a sign left on the top reading “do not move” and a box of student files which the defendant was under a statutory obligation to preserve for audit purposes. The defendant had also left a certain quantity of cabling, wiring, trunking and electrical sockets that related to IT equipment and a telephone system that had previously been in place.
In proceedings against the defendant, the claimant contended that vacant possession had not been given on the break date, and that the lease accordingly continued, since: (i) the defendant had not manifested any objective intention to give vacant possession; (ii) it had continued to make use of the premises by storing items there; and (iii) the presence of those items represented a substantial impediment to, or interference with, a substantial part of the premises.
Held: The claim was allowed.
(1) The conditions of break clauses had to be complied with strictly. The court had to apply an objective test to determine whether there had been exact compliance with the requirements of the lease: United Scientific Holdings v Burnley Borough Council [1978] AC 904, Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 and Legal & General Assurance Society Ltd v Expeditors International (UK) Ltd [2006] EWHC 1008 (Ch); [2007] 1 P&CR 5; [2006] PLSCS 104 applied.
(2) In the instant case, the terms of the lease required the tenant to give vacant possession of the whole of the premises at the break date. Whether vacant possession was given depended on two tests: (i) whether, objectively viewed, the tenant had manifested a clear intention to effect a termination of the lease; and (ii) whether the landlord, if it so wished, could have occupied the premises without difficulty or objection at the break date. When looking at the question of occupation of the property, there had to be substantial impediment to the use of a property, or a substantial part of it, before the court could conclude that vacant possession had not been given: John Laing Construction Ltd v Amber Pass Ltd [2004] 2 EGLR 128; [2004] 17 EG 128, Legal & General Assurance and Ibrend Estates BV v NYK Logistics (UK) Ltd [2011] EWCA Civ 683; [2011] 3 EGLR 1; [2011] 36 EG 94 applied.
(3) The reference in the break clause in question to vacant possession of the “whole” of the premises did not import any different test. In the context of a conveyancing transaction, whether involving a sale of land or the termination of a demise by the service of a break notice, it would be an alien concept to talk of vacant possession of “part” of a property. Vacant possession was required of “the premises”, where that phrase was used, and the addition of the word “the whole” of the premises did not add anything. If the clause specifically said that possession need only be given up of part of the premises, then presumably there would be a termination only in respect of that part. Where, however, there was a termination of the whole of the demise, a reference to vacant possession of “the whole” of the premises added nothing.
(4) Applying the relevant tests, the defendant had not given vacant possession of the premises on the break date. There had been no objective manifestation by the defendant of an intention to effect a termination of the lease. That was a matter not of the defendant’s subjective intention but of an objective manifestation of that intention. The defendant had taken no positive step to demonstrate to the outside world that it had given up vacant possession of the property. The situation was more akin to an abandonment of the premises rather than a delivery up of them. It was relevant that there was no correspondence saying that the defendant was giving up possession, no handover meeting and no delivery of keys or codes. While, in some cases, a failure to deliver up keys would not in itself be a significant factor, it was relevant in the instant case that the claimant itself had no keys to the doors in the demised premises and, so far as an alarm or access code was needed for those doors, the claimant did not know that code.
It was also relevant that the photocopier and the box of files were still owned by the defendant or were under its control, had not been abandoned and had been left on the premises. By leaving the photocopier and the files in the room, the defendant continued to store goods there and was therefore continuing to make use of the premises after expiry of the break notice.
Moreover, before the claimant could use the premises, it would have to do works to remove the partitions, reception desks, trunking, cabling and sockets, and would have to remove the photocopier and other chattels. Accordingly, the premises were not left in a state in which the claimant could if it wanted, occupy them without difficulty or objection. There was a substantial impediment to use of a substantial part of the premises. It followed that vacant possession had not been given and the lease therefore continued.
Toby Watkin (instructed by DLA Piper UK LLP) appeared for the claimant; Stephen Murch (instructed by BTMK Solicitors Ltd, of Southend-on-Sea) appeared for the defendant.
Sally Dobson, barrister
