Failure to yield up with vacant possession makes exercise of break clause ineffective

A recent case to come under the spotlight was Riverside Park Ltd v NHS Property Services Ltd [2016], which emphasised the importance of clearly identifying what a chattel or fixture is in order to ensure vacant possession is given. 

NHS Property Services Limited was the tenant of some office space and the landlord was Riverside Park Limited.  The tenant sought to terminate its lease by service of a break notice. The break clause provided that the notice would only be effective to end the lease ‘if the tenant gives vacant possession of the premises to the landlord’ on or before that date.  At the break date various items were left in the property, including large amounts of partitioning, kitchen units, floor coverings and other items.  Accordingly the landlord argued that vacant possession had not been given.

The focus of the case was on whether the partitioning and other items were a tenant’s chattel and so needed to be removed in order for the exercise of the break to be valid.

The Court held that the partitioning and other items were chattels and not fixtures, since they were only ‘slightly attached’ to the premises.  As a result, the failure to remove them rendered the break ineffective, meaning that vacant possession had not been given and the lease continued.

The items could in many cases be removed intact to be used elsewhere and were brought in to benefit the tenant rather than forming a lasting improvement to the premises.  Therefore, they were not part of the premises.  Furthermore, the presence of the partitioning substantially impeded or interfered with the landlord’s right to possession of a substantial part of the property.

The Court went on to say that even if the items were tenant’s fixtures, the exercise of the break clause would still have failed, as the definition of ‘premises’ in the lease specifically excluded partitioning and tenant’s fixtures and therefore these were not incorporated into the premises and needed to be removed for the break to be effective.

This case is a harsh, but useful, reminder of the challenges involved in giving vacant possession.  Tenants should carefully consider how works have been annexed to a property to determine whether removal will be required.  If there is a condition in the break clause that requires vacant possession it is all too easy to breach it by leaving items behind that may not look like chattels at first sight.

The terms of the lease and any licences should therefore be thoroughly checked to ensure compliance well in advance of the break date.  Tenants should be wary of agreeing to give vacant possession as a condition of a break clause in the first place.  An alternative to this could be to make it a condition of the break that the tenant to terminates any third party occupations of the premises.

If you would like assistance in relation to a particular situation, please contact a member of the Real Estate team on property@clarkslegal.com