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Vacant possession


Security guards

John Laing Construction Ltd v Amber Pass Ltd
[2004] 17 EG 128 (Deputy High Court Judge).

T operated a break clause in the lease and went out of occupation. However, T retained security guards and protective barriers at the premises for security purposes. L argued that T had failed to yield up the premises and so argued that the break clause had not been effectively terminated. The argument was rejected. Looking at the matter objectively T had done all that was necessary to make it clear that it was terminating the tenancy. Relvok Properties Ltd v Dixon (1972) 224 EG 1401 applied.


Vacant possession

Definition

NYK Logistics (UK) Ltd v Ibrend Estates BV
[2011] EWCA Civ 683

Summary

Where a break clause is conditional, failure to comply with all of the conditions by the break date may well mean that the lease has not been broken. This case examines the meaning of ‘vacant possession’: at the moment that vacant possession is required to be given, the property must be empty of people and chattels and the landlord must be able to enjoy exclusive occupation and control.

Facts

This case concerned a tenant’s break notice which expired on 3 April 2009. The break clause was conditional upon payment of rent; and delivery up of vacant possession by the break date.

After service of the break notice, discussions took place between the tenant and the landlord as to the carrying out of works pursuant to a terminal schedule of dilapidations served by L two days before the break date. It was not a condition of the break that the works be carried out in order for the lease to come to an end on the break date.

Realising that it would not be able to complete all the works before 3 April, T suggested that it be allowed a further week beyond the break date to complete the works. It offered to hand the keys back (so that L could have access) and to continue to pay for security guards until the works were complete. L did not respond conclusively to these suggestions, and Ts contractors entered the property after the break date in order to carry out the necessary repairs, which took four days to complete.

Issue

Had T complied with the conditions for operating the break clause i.e. delivering up vacant possession?

Decision

The court reviewed earlier decisions on ‘vacant possession’ and held that in order for vacant possession to be delivered up:
  • No-one must be in the property;
  • The landlord must be able to take immediate and exclusive occupation and control of the property;
  • The property must also be largely empty of chattels (i.e. any items left must not substantially interfere with the landlord's possession of a substantial part of the property)
The court concluded that because T had continued to use the premises for its own purposes (to complete repairs and so avoid a damages claim that might exceed the cost of the works) beyond the break date, it had failed to hand back vacant possession. Although T’s approach had seemed logical and sensible, it required the landlord’s consent which had not been forthcoming; the safest course would have been for T to move everyone out of the property (including the security guard) and deliver the keys to the agents.

The court also held that discussions as to the handing back of the keys did not lead to a waiver of the need to deliver up vacant possession; had the keys in fact been accepted by L there might have been a surrender, but that had not happened here.

Citation

Rimer LJ at para 44:
    "If NYK was to satisfy the vacant possession condition in the break option, it had to give such possession to Ibrend by midnight on 3 April and by not a minute later. What, to that end, did it need to do? The concept of 'vacant possession' in the present context is not, I consider, complicated. It means what it does in every domestic and commercial sale in which there is an obligation to give 'vacant possession' on completion. It means that at the moment that 'vacant possession' is required to be given, the property is empty of people and that the purchaser is able to assume and enjoy immediate and exclusive possession, occupation and control of it. It must also be empty of chattels, although the obligation in this respect is likely only to be breached if any chattels left in the property substantially prevent or interfere with the enjoyment of the right of possession of a substantial part of the property."

Vacant possession and chattels

Right to break defeated

Riverside Park Ltd v NHS Property Services Ltd
[2016] EWHC 1313 (Ch)

Summary

A tenant’s failure to remove demountable partitions, that were held to be chattels, defeated the tenant’s exercise of a break right conditional on giving up vacant possession.

Facts

A landlord (L) granted a 10-year lease of premises to T as tenant. The lease contained an option for the tenant to break the lease on a date on giving L not less than 6 months’ prior written notice. It further provided that: “any notice served by the Tenant shall only be effective to determine this Lease if the Tenant gives vacant possession of the Premises to the Landlord on or before the Break Date”.

T duly served such notice in accordance with the lease. Shortly thereafter the lease was assigned to T2 who failed to remove items including demountable partitioning, kitchen units, floor coverings and window blinds from the premises by the break date. L argued that this meant that T2 had not given vacant possession and so had not complied with the conditions for exercising the break.T2 argued that the relevant items constituted tenant's fixtures and fittings, and therefore it was not obliged to remove them in order to give vacant possession. L sought a declaration to this effect.

Issues
  • Whether the items left by T2 were chattels (in which case they did not form part of the Premises) or fixtures and fittings;
  • If chattels, whether this means that vacant possession had not been given; and
  • If fixtures, whether this means that vacant possession had not been given.
Decision

The Court found for L. The Court concentrated on the demountable partitions on the basis that if these were chattels that substantially interfered with L’s possession then it did not matter about the other items. In relation to these the Court held that they were chattels.

Reviewing cases back to 1846, the court looked first at the degree of annexation. The joint expert had stated that the partitions (with one exception) were easily removable, the fixings being to the raised floor and the suspended ceiling). That being the case, the court then concentrated on “what is likely to be more decisive is the object and purpose of annexation” concluding that, given its unique configuration the partitioning was “to benefit the tenant rather than affording a lasting improvement to the Premises” and concluding that the partitioning was a tenant’s chattel.

The failure to remove the partitioning meant that T had not given vacant possession.
The existence of the partitioning was, to quote Lord Greene in Cumberland Consolidated Holdings v Ireland (1946) KB 264, "an impediment which substantially prevents or interferes with the right of possession". It fell foul of the test in NYK Logistics Ltd v Ibrend Estates [2011] EWCA Civ 683 which defined vacant possession as being:
    " ... empty of chattels, although the obligation is this respect is likely only to be breached if any chattels left on the property substantially prevent or interfere with the enjoyment of the right of possession of a substantial part of the property". (See above)
As a result, vacant possession had not been given and the break right had not been effectively exercised.

Comment

The result of this case is a timely reminder that, in general, care should be taken in drafting and exercising conditional break rights to ensure that the tenant has a break right capable of being exercised. In fact, why do tenants ever agree to conditional break clauses? They are fraught with difficulty.

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