Be careful what you leave behind
A tenant break clause in a commercial lease is invaluable and has often been taken in to account when negotiating the rent. A break clause gives a tenant flexibility to relocate to fit their commercial needs or releases them from the financial obligations of the lease if the rent is no longer viable.
Therefore, it is crucial that a break clause is validly exercised and the benefit of having a right to break is not scuppered by a minor issue.
As a tenant, once you have correctly served your break notice, you may think you are home and dry and all you need to do is pack up your belongings ready to leave. But, is that enough? Careful consideration needs to be given to the conditions of the break clause. A common condition is that a tenant must give up ‘vacant possession’ of the premises. If vacant possession is a pre-condition, then exactly what that entails is another issue that a tenant needs to consider when packing up and shipping out!
This issue was considered in the case of Riverside Park Limited v NHS Property Services Limited. The tenant had installed, among other items, a large amount of partitioning which it did not remove before the break date. The landlord argued that the partitioning (and other items) remaining in situ meant the tenant had not yielded up the property with vacant possession when the break clause required them to do so and so the break clause had not been properly exercised.
The court had to determine whether the items the tenant left behind were chattels or tenant’s fixtures. To give vacant possession means that the tenant’s chattels must not be left in the property. If they are left and they substantially prevent or interfere with the landlord’s right to possession of the property then the tenant has not given vacant possession. Whether items are chattels are fact specific and determined on a case by case basis and so the court had to consider the degree and purpose of annexation to determine the category of each item left by the tenant.
The court held the items were chattels which substantially prevented the landlord being able to use and easily re-let the property following exercise of the break. Therefore vacant possession hadn’t been given. As vacant possession hadn’t been given, the break notice was ineffective and the tenant was left on the hook for the remainder of the lease term.
What can a tenant do to avoid being in this position?
- A well advised tenant will oppose the inclusion of a pre-condition about giving up vacant possession in a break clause. The condition should simply be to give up occupation instead.
- When a tenant is looking to comply with a condition about vacant possession within a break clause, it should take a cautious approach and take advice where possible so as not to risk frustrating the break. Engaging with the landlord early on and agreeing in writing what will be left and what will be removed will definitely help.
- Break conditions must be strictly adhered to and so it is crucial all conditions are checked and complied with so as not to trip up over a minor point and remain tied into a lease that the tenant no longer wants.
Unfortunately, on this occasion, the tenant had to unpack its bags and remain in occupation – make sure you don’t make the same mistake and take full advice when it comes to not only exercising your break, but agreeing the conditions as well!
This update is for general purposes and guidance only and does not constitute legal or professional advice. You should seek legal advice before relying on its content. For advice, get in touch with your usual Greenwoods GRM contact or scroll down to complete our enquiry form.