09 July, 2021
This case concerned a three-storey modern commercial unit. It had been leased on 4 March 2002 for a term expiring on 11 November 2025.
Clause 10 of the Lease was a tenant's break clause. This gave the tenant the option to terminate the lease on 12 November 2009 or 12 November 2017. This was subject to certain conditions; clause 10.1.4 stated that the tenant should "give vacant possession of the Premises to the Landlord on the relevant Tenant's Break Date"
The Tenant sought to exercise the break clause on 12 November 2017. At this date a range of items including ceiling grids, ceiling tiles, fire barriers, floor finishes, pipework, lighting, smoke detectors and radiators had been stripped out of the premises, effectively leaving a shell. Evidence showed that these items were part of the original base and were the landlord's fixtures of the building, so when the tenant sought to terminate the lease, the landlord declined.
The issue to be decided was what constituted vacant possession. In this case, the Tenant had taken that "vacant" part literally and had left a shell of a property, which was dysfunctional. The Landlord argued that the tenant had failed to comply with the break clause as it required the "premises" to be returned to the Landlord. The definition of "premises" included the Landlord's fixtures and fittings, and as these had been removed, the Tenant had not returned the premises as defined.
In the first instance, the Deputy Judge agreed with the Landlord and rejected a claim by the Tenant that the landlord was estopped from relying on the alleged failure to comply with the break condition.
The Tenant appealed this decision and the Court of Appeal overturned the Judge's decision stating that the term "vacant possession" did not refer to the physical condition of the property, but rather it meant that the property was to be returned to the Landlord free from people, chattels and legal interests.
This case brings much-needed clarity to both Landlords and Tenants as to the scope of the term "vacant possession" and will no doubt assist in easing the handover from an outgoing Tenant to the Landlord.
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