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”. But what exactly does the phrase mean? The obligation is threefold: the premises must be free of people and chattels and there must be no legal impediment to the landlord’s use of the property.
One of the most common impediments to the provision of vacant possession is the presence of chattels or goods in the property. However, according to Cumberland Consolidated Holdings Ltd v Ireland [1946] KB 264, a party is in breach of its obligation to give vacant possession by leaving chattels in a property only if the physical impediment substantially prevents or interferes with the enjoyment of the right of possession of a substantial part of the property.
Until recently, disputes about the presence of chattels and goods in leased premises have turned on whether the tenant has removed everything that should have been removed from the property. But in Capitol Park Leeds plc v Global Radio Services Ltd [2021] EWCA Civ 995; [2021] PLSCS 119 the landlord claimed that its tenant had removed far too much from the property.
The High Court upheld the landlord’s claim. It ruled that the tenant had failed to provide vacant possession, as was required by its break clause, because it had stripped 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 from the premises. They were part of the original base build specification or, perhaps, elements of the building itself and the premises were now unoccupiable. Consequently, the lease remained on foot and would continue until the end of the term.
But the Court of Appeal has overturned the decision. It noted that there was a telling contrast between a provision in the lease requiring the premises to be yielded up with vacant possession “in a state of repair condition and decoration which is consistent with the proper performance of the Tenant’s covenants” and the break clause, which made no mention of such matters – and explained that the obligation to give “vacant possession” does not relate to the condition of premises.
The landlord had argued that the lease defined the premises as including the building that was there when the lease was granted and all its fixtures and fittings, except tenant’s fixtures. But the court preferred to interpret the term “the Premises” as meaning the premises as they were from time to time: Peel Land and Property (Ports No.3) Ltd v TS Sheerness Ltd [2014] EWCA Civ 100. Furthermore, although conditions in a break clause must be fully satisfied, that did not mean that the clause must be construed adversely against the tenant, and it did not follow that the conditions should be interpreted so as to favour the landlord.
The building had been left in a dire state. But that did not preclude the valid exercise of the break clause – and the landlord was not without a remedy for the deficiencies in the building. The break clause provided that termination was to be without prejudice to any right of action in respect of any previous breach of covenant or condition and the landlord could seek compensation for whatever loss it had suffered as a result of the tenant’s failure to repair.
Allyson Colby is a property law consultant
