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Vacant possession – could a partition wall get in the way?

The already murky waters of what vacant possession actually means in practice have been further muddied by a recent court case.

Courts already tend to interpret the meaning of vacant possession on a case by case basis making it difficult for tenants to summarise what it is they need to do to comply with the condition.

For instance, many tenants install partition walls to create separate office suites. Now the question is, when it’s time to deliver up vacant possession, do these need to be removed?

Chattels…..or fixtures?

Landlord, Riverside Park Ltd, argued that its tenant, NHS Property Services, had not provided vacant possession at the break date because it had left behind a large amount of partitioning, kitchen units, floor coverings and other items which were not in the property when the ten-year lease on open office space was granted.

The tenant argued that vacant possession had in fact been given because the items left behind were tenant’s fixtures which had become part of the premises.

With the main focus on the partitioning – described as having turned the property into a ‘rabbit warren’ – the High Court examined whether this equated to chattels or tenant’s fixtures before concluding that all the items were chattels as they were only ‘slightly attached’ to the premises and could be removed intact to be used elsewhere.

Having established the items were chattels, the court decided that vacant possession had not been given because the presence of the partitioning substantially impeded or interfered with the landlord’s right to possession of a substantial part of the property.

Clear implication

Although some may question the decision, the lesson is clear – if there is a condition in the break clause that requires vacant possession, it is all too easy to breach this by leaving items in the premises even if you think they don’t count as chattels.

If you do not meet all the conditions of your break clause then your landlord can treat your break as ineffective and you remain liable under the lease for the remainder of the term, or until your next break clause if you have another one.

How to avoid vacant possession pitfalls

  • Make sure you leave the property empty of people, possessions and rubbish;
  • Obtain, in writing, the landlord’s permission beforehand if you wish to leave anything in the premises. The landlord does not have to respond but you may be able to reach agreement to give you some certainty;
  • Ensure that any subleases and licences have been properly terminated and there is no-one with an on-going right to remain in the property;
  • By far the best thing to do is to ensure that your break clause does not contain this condition in the first place. It is therefore advisable to address this right at the start when negotiating terms for your lease. The landlord’s agent can ensure that this is reflected in any agreed Heads of Terms so all parties are clear where they are going from the outset.

For help and guidance on this area of the law, please contact our Commercial Property team by phone or by popping into one of our 11 local offices.

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