Vacant Possession And Break Clauses ' Updated

• Published date: 12 August 2021
• Subject Matter: Litigation, Mediation & Arbitration, Real Estate and Construction, Trials & Appeals & Compensation, Landlord & Tenant - Leases
• Law Firm: Russell-Cooke Solicitors
• Author: Harriet Allsop

In October 2020, the High Court handed down its decision in Capitol Park Leeds PLC v Global Radio Services Limited. To summarise, the tenant (Global Radio) served a break notice on Capitol Park to terminate its lease. One of the break clause conditions was that the tenant had to give up "vacant possession" of the premises. The tenant removed items which were actually the landlord's fixtures and fittings; these included ceiling tiles, fire barriers, floor finishes, pipework, lighting, smoke detection systems and radiators. By removing the landlord's fixtures and fittings, the High Court held that the "vacant possession" condition had not been satisfied, because the removal of the items "substantially impeded" the landlord's use of the property. Therefore, the break clause had not been validly exercised and the lease would continue to run until its contractual end date in 2025.

A fuller discussion of the High Court decision can be found in our previous briefing.

What's the latest?

In July 2021, in a decision that will be heartening for tenants, the Court of Appeal reversed the High Court's decision. The Court of Appeal had to consider whether the tenant's removal of the various fixtures and fittings meant that vacant possession of the premises had not been given back to the landlord, as required by the break condition.

The landlord's argument was that, to comply with the break condition, the tenant was required to give back "the Premises". The definition of "Premises" under the lease included "all fixtures and fittings at the Premises whenever fixed" (except tenant's fixtures). The tenant had removed such fixtures and therefore, on the landlord's case, the tenant had not complied with the break condition.

On appeal, the tenant submitted that the break condition was not concerned with the physical state of the Premises. The tenant argued that the break condition was concerned with whether the landlord was recovering the Premises free of "things, people and interests". The tenant argued that the break condition was inconsistent with the yielding up covenant, which required "a state of repair condition and decoration which is consistent with the proper performance of the Tenant's covenants".

On the tenant's case, it was argued...