Break options and vacant possession: a cautionary tale
A provision in a lease which enables the tenant, landlord or both to end the lease early is called a break option. If any conditions attached to a break option are not complied with, then the break will not take effect and the lease will continue. Consequently, commercial tenants with a break option conditional upon vacant possession who don’t remove all their belongings from the property run the risk of invalidating the break.
Various cases have concluded that if there is a substantial impediment to the landlord’s use and enjoyment of the property then vacant possession has not been given. This could be something physical, such as the tenant’s belongings being left behind or because people are still in the premises.
In a fairly recent case, Riverside Park Ltd v NHS Property Services Ltd, the tenant had leased an open plan premises and carried out various alterations, including the installation of removable partitioning. Subsequently, when the tenant attempted to exercise the break clause by vacating the premises, the landlord argued that failure to remove the partitions meant that vacant possession had not been given, and therefore the lease had not been broken.
The tenant argued that the partitions had become part of the premises and were therefore tenant’s fixtures and there was no obligation to remove them in order to give vacant possession.
The High Court ruled that, although the partitions were fixed to the floor and ceiling, they were belongings and not tenant’s fixtures. This was because they could easily be removed without causing any damage to the premises. Consequently, the tenant had not satisfied the condition and the exercise of the break option was therefore invalid.
Generally, when negotiating a break clause we would advise a tenant to ensure that vacant possession is not a condition of the break. In some cases it is possible to water down the obligation so the tenant must only give up the premises free from occupation. This would mean that any remaining belongings would not prevent the break, but might instead be subject to a dilapidations claim.
To reduce the risk of dispute later on, it may also be worth speaking to the landlord and negotiating a list of what needs to be removed for any break to be effective.
If we can help you with any of the issues above, please get in touch.
Emma works as a solicitor in our Legal 500-rated commercial property team. With a particular interest in leasehold work, she advises clients on a wide range of issues, including sales and purchases, landlord and tenant leasehold matters, and ancillary matters.