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Break Clauses - Beware of Vacant Possession

on Monday, 10 July 2017.

The High Court reminded us last year just how strictly courts interpret compliance with conditions attached to the exercise of break clauses, specifically the condition to give vacant possession.

This is means to leave the property empty of tenant's possessions.

It is important for public sector tenants to be aware of this to ensure that any break conditions are met when seeking to exercise a break clause. Conversely, it is important for public sector landlords to be aware of this as there may be an opportunity to frustrate a tenant who is purporting to exercise a break clause while not satisfying any or all of the break conditions.

The Case

In the case of Riverside Park Ltd v NHS Property Services Ltd ([2016] EWHC 1313 (Ch)), to validly exercise the break clause, the tenant had to give vacant possession on or before the break date. When the lease was granted, the premises were open plan. During the term of the lease, the tenant installed partitioning at the property. The partitioning remained at the property on the break date.

The court had to consider whether the partitioning comprised chattels or tenant's fixtures.

A tenant is generally required to remove chattels from the property at the end of the term on the basis that they do not form part of the premises. A failure to remove chattels jeopardises a condition attached to a break clause to give vacant possession.

Tenant's fixtures are chattels that are attached to the land by the tenant for the purposes of its business and which are capable of physical removal without causing substantial damage to the land and without the chattels losing their essential utility as a result of the removal. As tenant's fixtures become part of the property, a failure to remove them on or before a break date does not mean that the tenant has failed to give vacant possession.

When Does a Chattel Become a Fixture?

When considering whether a chattel has become a fixture, the following is relevant:

  • the extent to which the item is annexed to the land - can the item be easily removed?
  • the purpose for which the item was brought onto and annexed to the land - has the item been fixed for the permanent improvement of the property or for the more complete enjoyment and use of the item as a chattel?

The Decision

The court found (a) the partitioning was standard demountable partitioning and not fixed to the structure of the building and (b) the configuration of the partitioning was unique and to benefit the tenant rather than to afford a lasting improvement to the premises.

On this basis, the partitioning comprised chattels and the presence of the partitioning at the premises on the break date substantially prevented or interfered with the landlord's right of possession. Therefore, the tenant had failed to meet the condition to give vacant possession and had not validly exercise the break clause. It was liable to pay rent for the remainder of the term.

Practical Considerations from a Tenant's Perspective

If you are a tenant, in order to meet the condition to give vacant possession, it is imperative that you move out on or before the break date and remove all goods and items from the property. On or before the break date, you should seek a handover with the landlord to return the keys and to inform the landlord of any alarm codes.

Practical Considerations from a Landlord's Perspective

If you are a landlord and your tenant is seeking to exercise a break clause, ensure that you do not waive compliance with any conditions attached to the break clause until you have had an opportunity to assess the position. If it is necessary to accept keys from the tenant or secure the property, this should be done on a without prejudice basis. There is no obligation on you as landlord to be helpful to the tenant and advise the tenant what you consider it must do to comply with any break conditions.

If you require advice in relation to exercising a break clause please contact Katie Hickman in our Property Litigation team on 020 7665 0913.

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