In a recent case the High Court had to decide whether a tenant that had served a break notice to exercise a once-and-for-all conditional break option had effectively terminated its lease.
The case was Riverside Park v NHS Property Services and the tenant had to do two things:
- give at least 6 months' notice to terminate its lease on 24 September 2013; and
- give vacant possession of the premises to the landlord on or before that date.
Everyone agreed that the tenant had satisfied (i) above. The dispute revolved around (ii) and whether the tenant had given "vacant possession" of the premises to the landlord.
"Vacant possession" does not just mean making sure all occupiers have gone. It has a much wider meaning to ensure that nothing is left in the premises that substantially prevents or interferes with the landlord's use or enjoyment of the premises. It can be a tough condition to satisfy.
When the lease was granted, the premises formed one large open-plan space but the tenant installed a large amount of demountable partitioning. The partitioning created a "rabbit warren" of office space and the tenant did not remove this when it vacated.
A fundamental question before the court was whether such partitioning was a "fixture" or a "chattel"? This is an important question because the general rule of thumb (but not always) is that chattels need to be removed and fixtures may not.
The court decided that the partitioning was a chattel because:
- the partitioning was temporary for the tenant's own benefit (and not to make a permanent improvement to the building), and
- it was attached to the raised floors and suspended ceilings, not to the structural slabs of the building.
The partitioning substantially interfered with the landlord's use of the premises and, as a result, vacant possession had not been given. The break failed.
The tenant is now on the hook for the substantial rent and other sums due for the rest of the lease term, simply because it failed to carry out a few thousand pounds' worth of works. The case is a glaring example of the courts' strict approach to assessing whether conditions attached to the valid exercise of a break clause have been met.
Each situation turns on its own facts and the distinction between a "fixture" and a "chattel" is not always an easy one to decide. If your lease has a break clause conditional on vacant possession being given, seek early advice in relation to any partitioning (or other similar alterations) to determine which are chattels and must be removed; and which are fixtures and may not need to be removed to ensure the "vacant possession" condition can be met.