Vacant Possession And Break Rights

An obligation to give vacant possession is not satisfied if personnel remain at the property, even if the tenant has offered to return the keys to the landlord and would leave if asked to do so.

It is a well established rule that conditions attached to a right to terminate a lease, a "break right", must be strictly complied with. For that reason, a tenant would be well advised not to agree to a condition that it has complied with all its obligations under the lease, because there will inevitably be some breach, probably of the repairing covenant, which would prevent the tenant from exercising the break right. A condition requiring vacant possession to be given is very common but, as a recent Court of Appeal decision shows, it too can trip the tenant up.

The recent case concerned a lease of a warehouse in Rotherham. The tenant had originally taken an assignment of a ten year lease and when that ended it took a further two year term with a right to break after one year on six months' notice provided the rent was paid and the tenant had given vacant possession of the premises.

The tenant gave notice to exercise the break right and a few days before the lease was due to end some minor outstanding repairs were identified. The tenant made what the judge later described as a sensible proposal. It suggested that it would keep its security guard on site for a week after the break date while its workmen finished the repairs, but it would not pay rent or rates during that period and would hand over the keys on the break date so that the landlord would have full access. In effect the suggestion was that the tenant would give possession on the break date and return later to finish the repairs as the landlord's licensee.

The judge said that an arrangement along those lines would probably have made the litigation unnecessary. Unfortunately the landlord's surveyor could not get hold of the landlord before the break date to get a response to the tenant's proposal but the tenant unwisely went ahead with it in any event. When, a few days later, the landlord finally responded to urgent enquiries about handing back the keys, it discovered that the workmen were still on site. Instead of...