Disputes regarding the exercise of a tenant’s option to bring a lease to an end before the prescribed termination date often focus on the validity of the Notice. However, on other occasions, the focus is on whether a pre-condition permitting the exercise of the break has been satisfied. This was the case in the English property dispute of Riverside Park Limited (landlord) v. NHS Property Services Ltd (tenant). The High Court’s task was to distinguish whether certain items left within the premises by the tenant ought to be regarded as chattels (an easily moveable article of personal property) or a tenant’s fixture. This was significant because the parties’ lease required the tenant to provide vacant possession at the date of early termination. If chattels were left in the premises, the effect may be that the break would be rendered ineffective. In Scots law terminology read moveable property for chattels.
The tenant’s right to terminate its lease on 24 September 2013 was conditional on providing 6 month’s prior notice of the intention to exercise the break and giving vacant possession of the premises to the landlord on or before 24 September 2013. On the face of it the Landlord accepted that the notice was correct as to form and as to substance, thus the first condition was satisfied. The parties accepted that after the break date a number of items were left in the premises: a large amount of partitioning; kitchen units; floor coverings; window blinds; an intruder alarm; and water stand pipes within a large meeting room. It was further accepted that they had been brought into the premises by the tenant pursuant to a Licence for Alterations.
The landlord argued that the presence of these items in the premises after the break date resulted in the failure of the tenant to provide vacant possession and that accordingly the notice purporting to exercise the break was ineffective. The tenant argued that these items were tenant’s fixtures which ought to be viewed as being part of the premises; if wrong about that, that their presence did not interfere with the landlord’s enjoyment of the premises. In either case, their presence did not breach the pre-condition of providing vacant possession.
A joint expert provided a report on the manner in which the items were attached or annexed to the premises. The court’s assessment of the partioning was key to its determination. The expert saw the partitioning as being standard demountable partitions. His view was that their configuration resulted in a series of small offices, an unattractive proposition for prospective tenants today. The court commented that the fact that the tenant elected to erect demountable partitioning rather than affix the partitioning to the structure as the Licence for Alternations required be done suggested that the tenant saw the portioning as temporary. In short, the partitions were chattels. Moreover, they were an impediment which substantially prevented or interfered with the right of possession. The court commented that the landlord’s enjoyment of the premises included having them in a condition in which it feels that they are a more attractive proposition to prospective lessees. In short, vacant possession was not given and according the pre-condition in the break clause had not been met.
By way of addendum, the court found that the tenant had breached the Licence for Works to such an extent that it had ceased to have effect. The knock on effect of this was that the tenant was under an obligation to remove the unauthorised partitioning. Its failure to do so resulted in vacant possession of the premises not being given on the date of the purported termination of the lease. Again, according the pre-condition in the break clause had not been met.
I have been unable to find any Scottish cases in point but wonder whether a more lenient approach might have been taken to the assessment of the partitioning. Further, I wonder if a Scottish court would have placed such a subjective emphasis on the landlord’s enjoyment of the premises when assessing whether vacant possession had been given or not. It was also a surprise, perhaps, to not see an argument that the landlord had waived any right to assert that the tenant was in material breach of the Licence for Alterations. However, perhaps sufficient supporting evidence was not present.
In conclusion, this decision is a salutary reminder to tenants, and their advisors, that all pre-conditions in a break clause must be strictly complied with in order to take advantage of the right to terminate a lease before the expiry of its specified term. The terms of the lease and any licences should be thoroughly reviewed prior to the break date. Better still, if possible, tenants should agree to a pre-condition in any break clause to give up occupation rather than to provide vacant possession at the date of early termination.
Euan McSherry is a Solicitor Advocate and Head of DWF Real Estate Litigation in Scotland.
This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.