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Giving Vacant Possession when Exercising a Break Clause

The exercise of a break clause in a business lease by a tenant has historically proved fertile ground for disputes.  At Geoffrey Leaver Solicitors, we advise our tenant clients to have as few pre-conditions in a break clause as possible. The reason for this caution is that break clauses are usually operable some years after the grant of a lease and it can be difficult for a tenant to remember the pre-conditions that have to be satisfied when exercising the break (usually a very challenging time for a business!).

A “normal” condition of exercising a break is that the tenant is obliged to give vacant possession when leaving the premises.  The courts have recently considered whether a tenant had complied with this obligation, the argument revolved around whether the tenant’s exercise of the break clause was therefore effective (Riverside Park Ltd v NHS Property Services Ltd [2016]).

The issue before the court was whether the tenant’s demountable partitions, installed by the tenant in the premises, were chattels or were actually tenant’s fixtures as at the time of the grant of the lease; the premises were let to the tenant as “open plan”. If the demountable partitions were tenant’s fixtures then it would be arguable that vacant possession had been given by the tenant, if they were chattels then it would be arguable that vacant possession had not been given.  The tenant subsequently left its demountable partitions in place in the premises when leaving the premises after purportedly exercising the break clause in its lease.

The court held that the partitions were chattels. The demountable partitions substantially prevented or interfered with the landlord’s right of possession. Furthermore, the effect of the partitions was to create a series of independent office spaces solely created to benefit the tenant.  Failure to remove the partitions before leaving the premises meant that the tenant had not given vacant possession and this then meant that the tenant was still bound by the lease and could not use its break right.

The court made a point of highlighting that, whilst such cases may provide guidance for the future on when an item is considered to be a chattel, each case turns on its facts.

At Geoffrey Leaver Solicitors we encourage tenant clients to consider their individual requirements in agreeing conditions for exercising a break clause and to discuss with us on the grant of a lease their requirements when exercising the break itself.  This does avoid the seemingly endless possibilities for dispute at a later date!

For further information contact Darren Millis, Partner & Head of the Commercial Property Team on 01908 689319 or email dmillis@geoffreyleaver.com