Break Notice Update: Consequences of tenant’s failure to deliver vacant possession

Insights - 25/11/2020

In this case update, Graham Halsall looks at the recent decision in the case of Capitol Park Leeds PLC v Global Radio Services Limited [2020]. The Court in that case decided that the tenant’s break notice was invalid because the tenant failed to return the premises with vacant possession. 

We hate to say “we told you so” but in Graham Halsall's last update, he predicted that we would see cases of this nature. This time, it was a dispute about whether the tenant had satisfied the break condition to return the premises with “vacant possession”. This condition is commonplace in many leases and is considered to be one of the easier pre-conditions to satisfy. So, the case is worth a closer look.

The facts

The tenant served a break notice to exercise its right to terminate the lease. The break right was conditional on the tenant delivering to the landlord vacant possession at the expiry of the lease. Compliance with these kinds of break conditions must be absolute and there have been cases where tenants have fallen foul because they have not gone far enough to return to property free of people, chattels and legal interests. In one case, the presence of workmen on site was all it took to trip up the tenant. The case of Capitol Park Leeds is different because this was a case in which the tenant had apparently gone too far in in its efforts.

In this case, the tenant had commenced an extensive programme of works to strip-out the premises, including the removal of a number of items considered to be the landlord’s fixtures and fittings under the lease. This was with a view to complying with the tenant’s reinstatement obligations in the lease. During the course of these works, a number of defective items were identified and it was clear that substantial works would be required in order to comply with the repair and yield up provisions of the lease. This led to negotiations for a financial settlement in respect of dilapidations. Those negotiations stalled and, ultimately, the property was returned to the landlord. However, the tenant had not reinstated those items which constituted landlord’s fixtures.

The tenant acknowledged that it may be in breach of covenants in respect of the repairing and reinstatement obligations under the lease and therefore liable for dilapidations. However, it was argued that the tenant had nevertheless still returned the premises with vacant possession. The landlord argued that, by removing the landlord’s fixtures, the tenant had returned substantially less than “the Premises”, as defined by the lease, as a result of which it could not be said to have returned vacant possession.

The decision

The Court agreed with the landlord. In reaching its decision, the Court focused on the second limb of the test for vacant position, namely that there should be no “substantial impediment” to the landlord’s use of the property. The result of the decision is that the tenant is liable for the remainder of the lease term. Not only that, but the property has been substantially stripped-out and therefore one assumes, incapable of occupation. Permission has been given to appeal the judgment, so this may not be the end of the story.

For now, this goes down as yet another cautionary tale for tenants in these difficult circumstances. The decision also confirms that it is possible for a tenant to go too far in the pursuit of delivering vacant position. So, there is a balance to be struck and, whether you are a tenant or landlord in these circumstances, we recommend that expert advice is sought.

Our specialist Property Litigation Team are experienced in helping clients understand the options and guiding them through each process. Contact us today to discuss any of of the issues raised above in relation to the break notice update.

Disclaimer:

Although correct at the time of publication, the contents of this newsletter/blog are intended for general information purposes only and shall not be deemed to be, or constitute, legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. Please contact us for the latest legal position.