Takeaways on achieving vacant possession
Capitol Park Leeds Plc v Global Radio Services  EWHC 2750 (Ch)
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.
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.
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.
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.
Property Patter: The last resort – FAQs on tenant liquidation
How does liquidation work?
Charles Russell Speechlys advises TDR Capital LLP and the Issa brothers on the real estate aspects of ASDA acquisition
TDR Capital LLP and the Issa brothers have completed their acquisition of a majority stake in ASDA from Walmart.
Leasehold Reform – The devil is in the detail
Taking a closer look at the Government's announcement in January that makes home purchase easier and cheaper for leaseholders.
Further extension to ban on residential evictions
There has been a further extension of the ban on enforcement of possession orders at residential dwellings in England until 31 March 2021 .
Spring Budget 2021 – Predictions
Grand designs – Who should take the design risk in an MMC project?
MMC have been touted as a way to tackle costs and inefficiencies within construction, but who takes responsibility for the design ?
Tech Connect Newsletter - February 2021
Welcome to the February edition of our Tech Connect Newsletter.
EMI share options, Covid-19, and Brexit – where are we now?
What are the new measures to employers operating EMI schemes that have been affected by the pandemic?
Spring Budget 2021 - predictions
Spring budget 2021 - what will the Chancellor do?
Charles Russell Speechlys advises Exeter Property Group on its acquisition of two property SPVs from the Tritax group
Exeter Property Group is one of the largest real estate investment managers focused on acquiring, developing and managing properties.
Property Patter: Love Thy Neighbour - how to deal with boundary disputes
Boundary disputes often involve high levels of stress and costs.
A Cautionary Tale of a Brush Too Broad
Definitions, definitions, definitions
Government announces further funding for building safety
Charles Russell Speechlys releases H2 2020 deal highlights
Our highlights over the past 6 months are now available.
Laura Bushaway writes for the Estates Gazette Legal Q&A on the implications of Covid-19 on business interruption policies
Laura Bushaway considers the question: Am I insured for Covid-19?
Charles Russell Speechlys advises the founders of The People Development Team (PDT Global) on sale to LTG plc
The People Development Team is a leading provider of online diversity and inclusion training and consultancy services.
New tax for UK Residential Developers
Building anxieties: The impact of a possible CGT rate rise on housebuilders
As the March 2021 budget approaches and a potential CGT rate rise, what does it mean for housebuilders?
Keeping Up With Construction: Pre-procurement - Practical Pointers
Successful procurement is more than the choice of the construction contract.