The Court of Appeal has backed tenants in an unusual case about the condition in which tenants are obliged to return premises to landlords.
In order to exercise their break rights on a tenancy, tenants must comply with their obligations to return the property to the landlord with “vacant possession”, which means they must remove everything to return it to the condition stipulated in the lease.
Usually, disputes occur when the tenant hasn’t removed enough. In the case of Capitol Park Leeds plc v Global Radio Services [2021] PLSCS 119, the dispute arose because the landlord argued that the tenant had removed too much.
The tenant in this case, Global Radio Services, a radio station, was assigned the property as part of a corporate acquisition, decided it was surplus to requirements and exercised the break which was conditional on “vacant possession”.
Rather than leaving too much behind, Global 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 starting negotiations with Capitol Park, the landlord.
Those negotiations failed and escalated into a dispute. At the High Court, Global said it might be in breach of its repairing obligations but it wasn’t in breach of its obligation to give “vacant possession”.
The High Court backed Capitol, saying 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.
But in a ruling today (5 July), the Court of Appeal reversed the decision and backed the tenants.
Examining the lease, High Court judge Lord Justice Newey said that, while it may be true that the building was left “in a dire state”, Global was required to return the premises on break day “free of the ‘trilogy of people, chattels and interests’”.
“On that basis, Global’s exercise of the break clause was effective… Capitol’s remedy is to seek compensation for whatever loss it may have suffered.”
Emma Preece, an associate at Charles Russell Speechlys LLP, said: “For tenants, the decision will be welcomed and takes us back to where we were prior to the High Court decision – ‘if in doubt, take it out’.
“In short, a tenant can still comply with a vacant possession condition by removing more rather than less from the property.”
Even so, she said that as the issue is clouded by a great deal of case law, particularly in circumstances where the tenant leaves things behind, it could lead to tenants adopting a more brazen approach when removing items from the property.
“The court’s conclusion that the ‘premises’ were to be returned on the break date free of the ‘trilogy of people, chattels and interests’ reiterates what is the general understanding of the meaning of vacant possession,” she said.
“The additional clarification that Capitol should seek compensation for whatever loss it may have suffered as a result of the dire state in which the premises were handed back will be welcome clarification for landlords, and should serve as a deterrent for tenants when considering compliance with a vacant possession condition.”
Preece added, however, that because of the uncertainty surrounding break conditions, most modern leases are now very clear about how premises should be returned to leave minimal scope for dispute.
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