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Complying With Vacant Possession When Exercising The Break Clause In A Lease

View profile for Andrew Beattie
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When negotiating a lease it is strategically beneficial for the tenant to have a break clause. If a landlord offers a break clause he will often try to fetter the tenant’s ability to exercise the break clause by including as many conditions as possible. Then, when the tenant comes to exercise the break clause, a disingenuous landlord will seek to prove that the tenant has not complied with such conditions thereby frustrating the tenant’s rights to break the lease.

For the purposes of this article I intend to look at the recent case of Riverside Park Limited v NHS Property Services Limited (2016) which relates to the condition requiring the provision of vacant possession by the tenant on the break date.

Riverside Park Limited was the landlord and NHS Property Services Limited the tenant. The lease was for 10 years with a break clause which could be exercised by the tenant at the end of the fifth year of the term. The break clause was conditional upon the tenant giving vacant possession of the property to the landlord on or before the break date. There was no issue about the notice being served correctly.  However, the landlord argued that vacant possession had not been given at the break date because the tenant had left a large amount of partitioning, kitchen units, floor covering and other items in the property. These items were not in the property when the lease was granted and had been brought in by the tenant pursuant to a licence for alterations. The tenant argued that vacant possession had been given because the items left behind were tenant’s fixtures which had become part of the property and, even if they were chattels they did not substantially prevent or interfere with the landlord’s enjoyment of the right to possession of the property.

This case focussed mainly on the difference between chattels and fixtures and how to distinguish between them.

The court came to the conclusion that, as the partitioning was only held in place by screw fittings, it could not qualify for the status as a fixture due to it being:-

  • able to be removed without causing damage to the property;
  • for the benefit of the tenant as opposed to affording a lasting improvement to the property.

The court held that that as the partitioning was a tenant’s chattel it should have been removed prior to the break date in order to comply with the vacant possession condition.

Although there is some debate as to whether partitioning should be classified as a chattel rather than a tenant’s fixture, it is clear that, if there is a conditional break clause, the tenant needs to comply with it fully.  A tenant should take proper advice from a solicitor before serving a break notice and also spend some time analysing what needs to be done to fully comply with any break conditions.

Speak to our Commercial Property Team  if you have any questions about leases.