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Commercial property – the complicated world of vacant possession break clauses

Commercial property – the complicated world of vacant possession break clauses

How to comply with the strict conditions required to serve a valid break clause notice for vacant possession has long been a deceptively complex area of commercial property law.

The term 'vacant possession' has a specific legal meaning which has been disputed in court countless times. In short, it is more complicated than simply moving out.

Now, the water has been further muddied by two conflicting court judgements which simply serve to confuse the matter further and leave the following unanswered questions:

  • What exactly does a tenant need to do to ensure vacant possession is given to the landlord?
  • What should a landlord accept?

How do these two commercial property cases heighten uncertainty?

In one, the court deemed a tenant had not complied with the break clause condition because it left items behind it shouldn't have done when moving out. In the other, it ruled the break clause was not effective because the tenant took things away.

  • In Riverside Park Ltd v NHS Property Services Limited [2016], the High Court held that a tenant failed to give vacant possession as it had not removed partitioning it installed during the term of the lease. This meant the tenant had not complied with the condition and the break was therefore not effective. The tenant remained liable for the rent and compliance with all other obligations under the lease.
  • In Capitol Park Leeds PLC v Global Radio Services Limited [2020], the High Court heard the tenant stripped out items from the property, intending to replace them but never did. As a result, the property was not handed back to the landlord as it should have been and the court decided this meant the tenant had not given vacant possession and therefore, the lease continued. It's worth noting permission to take this case to the Court of Appeal has been granted.

This illustrates that in both cases, despite contrasting circumstances, the break was not effective and the lease continued.

What exactly is a break clause?

A break clause is the ability for either party to end a lease before the agreed term.

They are common in commercial leases and can be triggered by either landlord or tenant, or indeed by both.

For a tenant, it is common for conditions to be attached to how the break clause can be exercised. A landlord will, for example, often insist that a tenant can only validly implement a break clause if they are up to date with the rent or other sums due under the lease.

Although cases that end up in court turn on individual circumstances, the message is clear - the conditions attached to break clauses may appear innocuous but in fact, have real and potentially serious consequences.

These conditions are interpreted absolutely meaning that if a tenant gets something wrong, the break is not actually triggered at all. As a result, the lease does not end and the tenant continues to be bound for the remainder of the term - or until the next break clause if there is one.

What are the implications for vacant possession break clauses?

They are becoming less common given the difficulties they pose. Specialist legal advice is key on all break clause conditions to ensure that they reflect the intention of the parties and are drafted to minimise future dispute.

Get in touch

If you need help or advice about commercial lease break clause conditions, please contact Wards Solicitors' highly experienced Commercial Property team.

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