Court's Interpretation Of 'vacant Possession' Invalidates Commercial Lease Break

• Published date: 24 November 2020
• Subject Matter: Real Estate and Construction, Real Estate, Landlord & Tenant - Leases
• Law Firm: Walker Morris
• Author: Mr Martin McKeague

Why do landlords and tenants need to know about Capitol Park Leeds v Global Radio Services?

Back in March 2020 Walker Morris explained that businesses often look to divest themselves of surplus property to reduce rental commitment in times of economic decline or uncertainty. Challenges facing the high street and the office sector as a result of the Coronavirus pandemic and the dramatic increase in home-working are now contributing to increasing numbers of businesses exercising break options, with a view to bringing about early termination of leasehold liabilities.

Once the decision has been made to bring a commercial lease to an end, the failure to serve a valid break notice can have drastic consequences. The business may lose the opportunity to break the lease and may therefore remain liable and tied into the property with long-term, unwanted commitments. The position is complicated by the fact that many lease break options are fraught with legal and technical traps for the unwary. The detailed and practical advice offered in our earlier briefing therefore remains absolutely pertinent.

In addition, the High Court's decision in the very recent case of Capitol Park Leeds plc v Global Radio Services Ltd ¹ seems to represent a new risk area for tenants seeking to deliver-up vacant possession in the context of their exercising an option to determine the lease.

What was the key issue?

Many commercial lease break options have a number of conditions attached and those must be approached with caution.

In Capitol Park Leeds v Global Radio Services, the valid exercise of the tenant's break option was conditional upon delivery up, on the break date, of vacant possession. That might sound straight forward enough - and indeed it is a very common break condition. However the case differed from existing authorities on what it means to give vacant possession, because it did not centre on items that had been left behind by the tenant - rather it was concerned with the fact that the tenant had stripped out various items ² and had handed back an empty shell.

The tenant accepted that it may have handed back the property in a state which did not comply fully with its repairing obligations, but it argued that it had nevertheless given vacant possession, and had therefore complied with the break condition. The landlord referred to the definition of 'Premises' within the lease, however, and maintained that, without the stripped-out elements, the tenant had not given back 'the...