A vacant building does not equal vacant possession

A vacant building does not equal vacant possession

The High Court has ruled in the recent case of Capitol Park Leeds PLC v Global Radio Services Limited [2020] that a tenant’s attempt to exercise the break in a lease, which was conditional on the tenant giving “vacant possession of the Premises” to the landlord, was not effective after the tenant had removed a substantial number of the landlord’s fixtures and fittings.

The facts

The case centred around a tenant’s break clause contained in a 24 year lease of a three storey modern commercial unit.

The tenant served written notice to the landlord to exercise the break in accordance with the clause.

The tenant returned the keys on the break date having stripped out around seventeen features and fixtures from the premises (such as suspended ceilings, M&E equipment and floor boxes) which were agreed by both parties to be landlord’s fixtures and fittings under the lease (the “Fixtures”).
The works to remove the Fixtures had been carried out by the tenant with the view to addressing the reinstatement provisions in the lease but the work had been unilaterally stopped without the items being replaced when the tenant decided to attempt to negotiate a financial settlement instead.

The issues

The landlord argued that, by removing the Fixtures the tenant had not satisfied the condition to provide “vacant possession of the Premises” but had returned substantially less than “the Premises”. The definition of “Premises” included the words “but including all fixtures and fittings at the Premises whenever fixed, except those which are generally regarded as tenant’s or trade fixtures and fittings…”.

The tenant argued that, whilst it acknowledged that it may be in breach of covenant in respect of the repairing obligations and therefore liable for dilapidations, it gave vacant possession of “the Premises” and so complied with the condition in the break clause. The tenant sought to rely on various authorities that applied a simple interpretation of vacant possession, that the premises must be returned free (or vacant) of people, chattels and legal interest.

The decision

The Court decided that:

• the outcomes caused by the removal of the Fixtures (e.g. business disruptions, damage to property, health and safety problems) were the sort of outcomes against which the landlord had been guarding when it adopted the definition of “Premises” in the lease by including the words “all fixtures and fittings at the Premises…(except Tenant’s fixtures)…and all additions and improvements made to the Premises.”;

• this was an “exceptional case” and (applying the second test for vacant possession identified in two leading authorities) the physical impediment caused by the tenant stripping out the Fixtures was such that there was a substantial impediment to the landlord’s use of the property. Therefore the condition, to return the Premises to the landlord with vacant possession on the break date, had not been satisfied.

Permission for the tenant to appeal to the Court of Appeal has been granted, however (and whilst each case will need to be interpreted on its own facts) the case potentially puts tenants in a difficult position – they will need to ensure that they are removing chattels from the premises in order to give vacant possession but if they go too far and remove landlord’s fixtures they could nonetheless fail to satisfy the break.