The Code for Leasing Business Premises in England and Wales 2007 recommends that the only pre-conditions to a tenant exercising a break clause should be that the tenant is up to date with rent, gives up occupation and has terminated any subleases. The Code deliberately avoids any reference to “vacant possession”, advocating that disputes about the state of the premises, or about what has been removed or left behind, should be settled later, as is the case when leases expire. However, leases often specify that vacant possession must be given when a lease is broken. This means that tenants must vacate, remove their belongings and any rubbish, and return the premises to the landlord in such a state that the landlord can re-occupy them without hindrance, failing which the tenant’s lease will continue in full force and effect.
In Riverside Park Ltd v NHS Property Services Ltd [2016] EWHC 1313 (Ch); [2016] PLSCS 222 the court had to decide whether a tenant had successfully exercised a break clause even though it had left internal non-structural partitioning, kitchen units, floor coverings, window blinds, an intruder alarm and water stand pipes in a meeting room in situ. The landlord claimed that the presence of the partitioning, in particular, had made it quite impossible for it to resume possession of substantial parts of the premises. The partitioning had been configured to suit the tenant and the property needed to be restored to its original state as one large open-plan workspace in order to attract another occupier.
Were the items that had been left behind tenant’s fixtures or chattels? The judge decided that they were chattels. The tenant had installed them for its own benefit – and not as a lasting improvement to the premises. In addition, they could be easily removed, without damaging them or the premises, for use elsewhere.
This conclusion was fatal to the tenant’s claim that it had validly terminated the lease, unless the judge could be satisfied that vacant possession had been given, despite the presence of the goods in question. Unfortunately for the tenant, he was not. The judge ruled that the presence of the partitioning in particular had deprived the landlord of physical enjoyment of the premises and that the lease remained in full force and effect.
Would it have made a difference, had the items been fixtures? Not in this case. The tenant argued that the licence permitting it to alter the premises had required it to remove the partitioning if the landlord requested it to do so when the lease ended. The landlord had not done so, and the tenant argued that this meant that it had been entitled to leave everything in place.
Unfortunately for the tenant, it had overlooked a separate provision in the licence for alterations stating that the licence would lapse if the tenant did not comply with its obligations while undertaking the work. Furthermore, the licence required the tenant to reinstate the premises if the licence ceased to have effect. The judge ruled that the licence had lapsed because the tenant had not complied with its obligation to obtain the insurer’s approval for the work – as well as being in breach of other covenants too. Therefore, the tenant had been obliged to remove the partitioning whether the landlord requested reinstatement or not, and its continued presence in the premises meant that vacant possession had not been given.
Allyson Colby, property law consultant