The Code for Leasing Business Premises recommends that the only pre-conditions to the exercise of a break option should be that the tenant is up to date with rent, gives up occupation and has terminated any subleases. The draftsmen deliberately chose not to use the expression “vacant possession” to make it easier for tenants to break their leases (taking the view that disputes about the state of the premises, or about items that have been left behind, should be settled after leases have ended).
However, most leases continue to specify that vacant possession must be given on the break date. Ibrend Estates BV v NYK Logistics (UK) Ltd [2011] EWCA Civ 683; [2011] PLSCS 156 is the first significant case on the meaning of this requirement in decades. The question the court had to answer was whether the lease continued after the break date because the tenant had failed to give vacant possession in time.
The tenant accepted that it had stayed on for a few days to carry out repairs to which the landlord had drawn its attention, but claimed that it had been there as a trespasser with no intention of excluding the landlord. The Court of Appeal rejected the tenant’s argument. It said that this would suggest that a seller could retain a set of keys and continue to occupy premises after selling them, without consent, until the buyer actually wanted to move in. Clearly, this was wrong.
Their lordships refused to re-cast the tests used to determine whether vacant possession has been given. The tenant chose to remain at the premises without permission to execute repairs that were not a condition of the exercise of the break clause. It did so to control the cost of the work, when what it should have done was move out and return the keys to the landlord on the break date. This would have terminated the lease and it could then have asked for permission to return and finish the repairs without prejudicing its position.
The problem arose as a result of the time taken to agree a terminal schedule of dilapidations and because the landlord ignored the tenant’s requests for permission to remain to effect the necessary repairs. However, in the absence of specific provisions obliging them to do so, landlords need not provide information or respond to requests that would assist tenants to operate break rights.
The court dismissed suggestions that the landlord had waived the requirement for vacant possession because it had discussed collection of the keys. The landlord had not been asked to make an election about the continuation or determination of the lease. The tenant had not relied to its detriment on anything said and had not surrendered the lease to the landlord.
The decision highlights the importance of emptying premises of both people and belongings before the break date, if vacant possession is required as a condition of a break option. Recipients will not have “vacant possession” unless they can take immediate and exclusive possession, occupation and control of premises, without substantial impediment to their enjoyment of them or a substantial part of them.
Allyson Colby is a property law consultant