Takeaways on achieving vacant possession

Capitol Park Leeds Plc v Global Radio Services [2020] EWHC 2750 (Ch)

Summary

The Court held that a conditional break which obliged a tenant to give “vacant possession of the Premises to the Landlord on the relevant Tenant’s Break Date” was not satisfied after a tenant carried out significant stripping-out works which included the landlord fixtures. The tenant’s actions left the building as “an empty shell” which was “dysfunctional and unoccupiable”.

Finding in favour of the landlord, the Court concluded that the tenant had handed back considerably less than “the Premises” (as defined in the lease), and therefore failed one of the tests of determining whether vacant possession has been given, i.e. that there must be no substantial physical impediment to the landlord’s immediate use or enjoyment of the property.

Facts

The claim concerned a three-storey modern commercial unit. The Defendant to the proceedings, Real Radio (Yorkshire) Limited, had purchased the lease as part of a wider acquisition and it was considered that this particular unit was surplus to requirements. The Defendant therefore elected to exercise its break option, which read as follows:

“10. OPTION TO DETERMINE 

10.1 The Tenant may terminate the Lease on….the 12th November 2017 (“Tenant’s Break Date”) if the Tenant:           

10.1.1 Gives the Landlord at least six months and not more than nine months written notice to expire on the Tenant’s Break Date of its intentions to do so.

10.1.2 (not applicable)

10.1.3 Has, at the date of the notice paid the rent and all other payments due under the Lease.

10.1.4 Gives vacant possession of the Premises to the Landlord on the relevant Tenant’s Break Date.

….”

On 15 February 2017, the Defendant purported to exercise the break clause by giving written notice to terminate the lease on 12 November 2017.

On 13 April 2017, the landlord’s solicitors served a Schedule of Dilapidations on the Defendant giving notice to reinstate the premises in accordance with the lease. This prompted discussions between the parties. Whilst these were ongoing, the Defendant started carrying out significant stripping out works which included (amongst other items) the removal of ceiling grids, ceiling tiles, window sills, fire barriers, radiators and lighting. As the discussions advanced, the Defendant stopped work pending an agreement being reached.

On or around 12 November 2017, the Defendant returned the keys to the landlord.

The landlord contended that the Defendant’s return of the Property on 12 November 2017, minus those items that had been removed or stripped out, did not amount to compliance with the break condition at 10.1.4 of the lease. The landlord’s case was predominately founded upon the definition of the “Premises” in this lease  as “1 Sterling Court, Capitol Park, Topcliffe Lane, Tingley, Leeds…..including all fixtures and fittings at the Premises whenever fixed, except those which are generally regarded as tenant’s or trade fixtures and fittings, and all additions and improvements made to the Premises and any outside parts….”. The landlord contended quite simply that the Defendant had not handed back the “Premises” as defined in the lease.

The Defendant disagreed and argued that vacant possession had been given in accordance with the terms of the break clause. This was because the premises had been handed back free of people, chattels and other interests, and therefore the “vacant possession” requirement had been satisfied.

In addition, the Defendant sought to rely on a meeting between the parties’ agents in June 2017 - arguing that the landlord was estopped from relying upon the alleged failure to deliver up the Premises with vacant possession. The Defendant alleged that an agreement had been reached at that meeting that the Defendant’s contractors should halt the remedial works pending negotiations for a financial settlement of the Defendant’s outstanding liabilities.

Issues

The question for the Court was whether the Defendant, in carrying out the stripping out works that it had before returning the premises to the landlord, had given “vacant possession of the Premises” for the purpose of the condition contained in clause 10.1.4 of the lease. Previous case law had already established that the conditions of a break clause must be strictly complied with, otherwise the lease will continue. This was the position adopted by the landlord, who argued that the lease had not been validly determined and should continue until its termination date of 11 November 2025.

The case required the Court to revisit the meaning of “vacant possession” on which there is already a wealth of case law. It is a question of fact as to whether such a condition has been complied with, based on the principle that the premises must not contain a substantial physical impediment to their use by the landlord (which means that the property must be empty of people and chattels, such that the landlord is able to assume and enjoy immediate and exclusive possession). However, the Court acknowledged that there was a lack of authority addressing whether vacant possession is achieved in cases where things are taken away – as opposed to things being left behind - which was the position in this particular case.

Decision

Dealing first with the estoppel argument, the Court concluded swiftly that no agreement had been reached that the Defendant’s contractors should halt works pending negotiations for a financial settlement of the Defendant’s outstanding liabilities. As there was no agreement, there could be no estoppel. The Court found that the Defendant had stopped work unilaterally in the hope of negotiating a settlement, which was not achieved.  

Moving to the main issue, the Court agreed with the landlord that the Defendant handed back considerably less than “the Premises” as defined in the lease, and therefore had not given vacant possession. Drawing upon principles established in previous case law, the Court found that there was a substantial impediment to the landlord’s use of the property due to the physical condition in which it had been returned.  

The Defendant has been granted permission to appeal the decision to the Court of Appeal.

This article was written by Emma Preece. For more information, please contact Emma on +44 (0)1242 246379 or at emma.preece@crsblaw.com.