What Does Vacant Possession Mean?

• Published date: 15 July 2021
• Subject Matter: Real Estate and Construction, Landlord & Tenant - Leases
• Law Firm: Boyes Turner
• Author: Russell May

The recent court of appeal decision in the case of Capitol Park Leeds Plc v Global Radio Services Ltd in June 2021 considered the meaning of vacant possession and whether a tenant can be in breach of contract by removing items from the premises that make up the building itself.

Background

In 2017 the tenant, Global Radio Services, served a break notice to terminate their lease of the premises. One of the conditions of exercising the break notice was that the tenant had to give vacant possession of the premises.

Discussions were held between the parties regarding potential dilapidation issues, but the discussions broke down without agreement between the parties. By the termination date the tenant had stripped out a range of items from the premises including ceiling grids, ceiling tiles, fire barriers, window sills, ventilation duct work, office lighting, smoke detection system, emergency lighting and radiators.

Owing to these additional items being removed from the premises the Landlord contended that the tenant did not give vacant possession of the premises and had therefore failed to comply with the break conditions, meaning that the exercise of the break clause was ineffective and the lease remained valid.

The decision at first instance

The Judge found that the features that had been removed by the tenant had been part of the original base build specification and so were landlord's fixtures or, perhaps, elements of the building itself.

"By including the words 'all fixtures and fittings at the Premises whenever fixed (except Tenant's fixtures)' and 'all additions and improvements made to the Premises', the Claimant was ensuring that a Tenant exercising its Break Option could not do so by handing back an empty shell of a building which was dysfunctional and unoccupiable.

But in the end, this is what the Defendant did. On my findings, they stopped the work unilaterally in the hope of negotiating a settlement. Those negotiations failed, the clock ran down, and the Defendant gave back considerably less than 'the Premises' as defined in the Lease. It did not give vacant possession. In my view, this is an exceptional case and therefore the second test identified in Cumberland and in Legal & General is satisfied, namely that the physical condition of the Property was such that there is a substantial impediment to the Landlord's use of the Property, or a substantial part of it. Accordingly, I rule that on the 12th November 2017 the Defendant did not give the...