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The barriers to a break up - advice for landlords

The High Court has found a conditional break requiring the tenant to give vacant possession was not effective because the tenant had failed to remove items from the premises including demountable partitioning, kitchen units and an alarm.

The tenant's failure to spend a few thousand pounds on removing the items from the premises meant that the lease continued and it was liable for substantial ongoing rent for a further five years.

Riverside Park Limited –v- NHS Property Services Limited 2016 EWHC 1313 (CH)

Summary of Facts

On 24 September 2008, Riverside Park Limited ("landlord") granted a lease of first floor premises for a ten year term ("lease").

On 18 March 2013, NHS Property Services Limited ("tenant") became the tenant shortly after its predecessor had served a break notice on the landlord. The notice purported to terminate the lease on 24 September 2013. The lease provided that the break would only operate if vacant possession was given on or before the termination date.

At the time of the commencement of the lease, the premises were open plan. On the same date as the lease, the landlord entered into a licence for alterations which permitted the tenant's predecessor to carry out certain works ("licence"), including the installation of partition walls (resulting in a series of small offices), kitchen units and an intruder alarm ("works"). The landlord required the works to be completed in accordance with certain specifications set out in the licence and, if these obligations were not complied with, the licence ceased to have effect. The licence also provided for the tenant to reinstate the premises as soon as the licence ceased to have effect.

The landlord claimed that the break did not operate because the tenant had not given vacant possession of the premises on the relevant date by virtue of the presence of the works.

The key questions for the court to determine were:

  1. Whether the works constituted chattels or fixtures; and
  2. Whether vacant possession had been given or not.

Decision

Were the works chattels or tenant's fixtures?

The Court held that the works were chattels. In reaching this conclusion, the Court considered the degree and purpose of annexation to the premises.

The partitions were standard demountable partitions and were held in place by screw fixings affixed to the raised floor and the suspended ceiling and could be removed without causing damage to themselves or the fabric of the building. The configuration resulted in a series of small offices which offered a benefit to the Tenant rather than affording a lasting improvement to the premises.

The kitchen base units were free standing and easily removed and the wall units were fixed only by screws to the perimeter wall – in both cases, the degree of annexation was held to be negligible.

The alarm was a second alarm installed by the tenant to supplement one installed by the landlord and the Court decided that it was "an instalment for the specific convenience" of the tenant.

What would the position be if the works were tenant's fixtures?

Even if the Court had incorrectly concluded that the works were chattels, it considered that the break would still have failed. The tenant sought to argue that the works were incorporated into the definition of premises and therefore there was no obligation on the tenant to remove the works. The Court disagreed – the definition of premises in the lease expressly excluded tenant's fixtures. Furthermore, the licence provided that the works were removable in certain circumstances, which was inconsistent with the tenant's argument.

The tenant also argued that under the lease and licence, it was only required to remove the works if the landlord expressly required it to do so. The Court also rejected this argument. Because the tenant had failed to comply with the specifications, the licence ceased to have effect and therefore the tenant was required to remove the works. 

Was vacant possession given?

No.

The Court determined that the works formed an impediment which substantially prevented or interfered with the landlord's right of possession of the premises. In particular, the Court determined that a landlord's enjoyment of the premises encompasses having it in a condition in which it feels that it is a more attractive proposition to prospective lessees.

Comment

The Court accepted that this conclusion may be seen as harsh but reiterated the point that had been made in a previous case that "there is no room for general considerations or fairness or conduct" in the context of whether a tenant has complied with a break condition.

Key points:

  • Break conditions must be strictly complied with regardless of how unfair or uncommercial that might seem.
  • The concept of vacant possession is not straightforward.
  • The lease is a critical document when governing the relationship between landlord and tenant. However, other documents can be equally important. When taking any strategic steps or considering the terms of a lease, always check whether there are any other documents which may be relevant – these might include licences, deeds of variation and agreements for leases.

If you require any further information please contact Rachael Donnelly » 

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.