A great many disputes about the exercise of break rights turn on whether the tenant has complied with its obligation to return the premises to the landlord with vacant possession. In many such cases, the dispute turns on whether the tenant has extracted everything that should have been removed to comply with the provisions in its lease.
However, in Capitol Park Leeds plc v Global Radio Services Ltd [2020] EWHC 2750; [2020] PLSCS 193, a landlord claimed that its tenant had removed too much from the property. The lease in question had become vested in an assignee as a result of a corporate acquisition, and the premises were surplus to the assignee’s requirements. It therefore decided to exercise the break clause in its lease, which was conditional on the provision of “vacant possession of the premises” on the break date.
But the assignee had stripped the premises of ceiling grids and tiles, floor finishes, window sills, boxing on columns, fan coil units and connections, ventilation ductwork, office and emergency lighting, the smoke detection system, radiators and pipework, floor boxes and sub mains cables – before embarking on negotiations with the landlord to establish whether a financial settlement could be achieved in lieu of reinstating the premises before returning them to the landlord.
Sadly, the negotiations proved unsuccessful and, because there was insufficient time to reinstate the premises before the break date, the assignee returned the keys to the landlord, leaving the work unfinished.
The assignee accepted that it might be in breach of its repairing obligations. But it denied that it was in breach of its obligation to give “vacant possession” and that, as a result, the lease would, perforce, continue until the end of the term in 2025. Alternatively, it claimed that the discussions between the parties’ respective surveyors had created an estoppel in its favour.
The High Court accepted that the assignee’s surveyor had informed the landlord’s surveyor that his client intended to put a temporary stop to the work, while negotiating, and that various aspects of tidying up were discussed. But there was no evidence of any agreement between them. So the case turned on whether the assignee had provided “vacant possession of the premises” for the purposes of the break clause in the lease.
The assignee argued that the break clause did not require it to give vacant possession “in a state of repair, condition and decoration which is consistent with the proper performance of the tenant’s covenants in the lease” – and that the reference to “the premises” was to be interpreted as meaning the premises as they were from time to time. It suggested too that disputes about the state of the premises should be settled later and not in the context of whether or not a break right had been validly exercised.
However, the court preferred the landlord’s arguments. The lease defined the premises as including the building that was there when the lease was granted and all its fixtures and fittings, whenever affixed (except tenant’s fixtures) – and the assignee had handed back an empty shell of a building, devoid of essential fixtures and fittings, which was dysfunctional and unoccupiable.
In so doing, the tenant had failed to provide vacant possession because the physical condition of the premises was such that there was a substantial impediment to the landlord’s use of them, or of a substantial part of them: Cumberland Consolidated Holdings Ltd v Ireland [1946] KB 264 applied.
Allyson Colby is a property law consultant
