Empty warehouse building

19/04/2021

In our fourth article on how to successfully exercise a break clause on a commercial lease, we will be looking at vacant possession and how this might affect your break rights.

As with so many aspects of break clauses, if the rules around vacant possession are not fully observed and properly implemented, your break notice could be deemed invalid.

It is not at all uncommon to see a pre-condition of a break clause requiring the tenant to give the property back (or to ‘yield it up’) with vacant possession on or before the break date.

That might sound reasonable and straightforward enough, but the precise definition of ‘vacant possession’ has been the cause of debate.

Various cases have concluded that if there is a substantial impediment to the landlord’s immediate use and enjoyment of the property, then the property may not have been yielded up with vacant possession. This will be assessed on a case-by-case basis, however, what is clear is that the courts are taking a very a strict and stringent view.

By way of example, if a tenant has instructed contractors to do some repair works and they are still on site on or after the break date, vacant possession may not have been given. Equally, rubbish or tenant belongings left at the premises may also impede on a landlord’s immediate use and enjoyment of the property.

The High Court judgment in Riverside Park v NHS Property Services [2016] provided further guidance on the issue of vacant possession.

The property in question was let as an open-plan workspace, but the tenant had over the course of its tenure carried out various alterations, including the installation of removable partition walls.

The landlord argued that by failing to remove the partitions the tenant had not given vacant possession, and the break was therefore invalid as the pre-condition had not been met. The tenant argued that the partitions had become part of the premises, and there was therefore no requirement to remove them in order to give vacant possession.

The court held that, notwithstanding the fact that the partitions were fixed to the floor and the ceiling, they were tenant belongings (and not tenant fixtures as the tenant sought to argue). One of the deciding factors for the court was the fact that the partitions whilst fixed, could easily be removed without causing any damage to the premises. Consequently, the tenant had not given vacant possession and the exercise of the break was therefore invalid.

The important lesson for tenants is to note that any failure to strictly observe conditions attached to a break can have a devastating and expensive impact.

Conversely for landlords, a failure by the tenant to give vacant possession may present you with an argument that the break is invalid and save you the time and cost of finding alternate tenants.

Whether you are a landlord or a tenant, if you need help and advice with break clauses on commercial premises, don’t hesitate to get in touch with our dispute resolution team by phoning 01782 205000 or emailing enquiry@beswicks.com

Read the other articles in this series:

Part 1 – What is a break clause and how do you exercise one?

Part 2 – Can rent arrears invalidate a break notice?

Part 3 – What is meant by material and reasonable compliance?