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Home » Latest News » High Court rules on Break clauses and Vacant Possession

High Court rules on Break clauses and Vacant Possession

High Court rules on Break clauses and Vacant Possession

A recent ruling has left solicitors warning commercial property tenants to thoroughly check the conditions of their lease prior to instigating a break clause.

The case saw NHS Property Services Limited lose in a dispute brought by Riverside Park Ltd over office partitioning that had been put in place by the NHS during their tenancy and not removed prior to exercising the break in the lease.

The High Court Judge ruled in this case that vacant possession had not been given and because of the unique format of the partitioning which did not generally improve the property, the tenant had substantially prevented and interfered with the landlord’s enjoyment of the property.

In order for a tenant to successfully exercise its right to break in a lease, it must ensure that it has complied with any conditions attached to the break clause. The case law illustrates that a tenant will not be given much help if it does not strictly comply with the conditions attached to its break. This is why it is usual for a tenant’s advisors to try and negotiate an unconditional break clause.

Despite the Lease Code 2007, which is a voluntary code, stating that a break right should not be conditional upon vacant possession being given; it is a condition that is regularly imposed by landlords. The concept of vacant possession was considered recently in the afore mentioned High Court case involving Riverside Park Ltd and NHS Property Services Limited [2016] EWHC 1313 (Ch).

When the lease was first granted to the tenant (now NHS Property Services Limited), the property was open plan and during the term of the lease the tenant, with the consent of the landlord, carried out various alterations and installed partitioning to suit its business needs. When the tenant exercised its right to break it failed to remove its works including the partitioning. The landlord argued that the break was ineffective as the tenant had not provided vacant possession.

The High Court had to consider this point. The tenant argued the break was effective and that the works were tenant's fixtures which had been integrated into the property. There was a right but no obligation in the lease to remove tenant's fixtures. It argued that if the works were alternatively considered chattels (a tangible moveable asset like tenant’s equipment, a car or jewellery), vacant possession had been given, because their presence did not substantially prevent or interfere with the enjoyment of the property by the landlord.

If a tenant is looking to exercise its right to break a lease, it should instruct its advisors in good time in order to check the terms of the lease and any licences to ensure full compliance of the conditions otherwise the lease will remain in existence until the lease can be determined at a later date.