Vacant possession...or is it?


Many break options, particularly in older leases, include a condition requiring the tenant to give the Landlord vacant possession of the premises on the break date. The question of what constitutes vacant possession has recently been revisited by the Court and you should consider this if you have a break option coming up which is conditional upon vacant possession being given.

What is vacant possession?

When a break option is conditional upon the tenant giving vacant possession, this means that on or before the break date the tenant must give up occupation of the premises and remove all its furniture, equipment and other chattels from the premises. In addition, it should ensure that any tenant's alterations and fixtures are removed from the premises if this is a requirement under the lease. In a 2011 case the Court decided that a requirement to give vacant possession means that the premises should be "free of chattels which substantially prevent or interfere with the enjoyment of the right to possession of the premises". Therefore, if a tenant leaves any items on the premises on the break date which prevent or interfere with the landlord’s right of possession, the landlord may argue that vacant possession has not been given and therefore the break right has not been successfully exercised.

In a case last year (Riverside Park Ltd v NHS Property Services Ltd) the Court considered whether a break option, conditional upon the tenant providing vacant possession, had been validly exercised when the tenant left behind demountable partitioning, kitchen units, floor coverings and window blinds at the premises on the break date. The Court decided that the demountable partitions were chattels as they were easily removable and they were specific to this particular tenant rather than a lasting improvement to the premises. In view of this, the failure to remove the partitioning meant that the tenant had not given vacant possession by the break date and the break right had not been effectively exercised.

What do you need to do?

If you have a break option coming up, you should check to see if the break option is conditional. It is essential that any conditions attached to a break option are strictly complied with by the break date. Any failure to do so may impact on your ability to exercise the break and ultimately leave you on the hook as tenant for the remainder of the lease term. Therefore you should consider carefully what action you will need to take before the break date (such as reinstating any alterations you have made and ensuring all rents are paid up to date). If you are in any doubt, you should take advice from your lawyer and surveyor. It is also advisable to have early discussions with your landlord about any alterations that will need to be removed by the break date so that you have sufficient time to arrange for any works to be undertaken.

If you are negotiating a new lease which contains a tenant's break option you should try to resist this being conditional upon vacant possession being given. Instead, we would suggest that the break option should either be unconditional or conditional only upon the tenant giving up occupation and leaving no continuing subleases by the break date.

It is worth mentioning that there can be many other issues to deal with in order to operate a break clause successfully, such as serving the notice correctly on the right person at the required time, and ensuring other conditions, such as the payment of all rent and service charge, have been complied with. Landlords have a vested interest in frustrating the exercise of break options. It is therefore advisable to consult a solicitor well before the break date to check that all aspects will be covered and disputes avoided.

If you would like more information or advice on vacant possession, please contact Rebecca Eyden or any member of the Retail team.