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Almost Vacant Might Not be Vacant Enough

Commercial landlords and tenants are likely to have come across the term “vacant possession” in a number of legal documents such as sale contracts, leases rent review clauses and break clauses. Most landlords and tenants alike believe they know the meaning of the term using common language, but how might the meaning differ “at law” and how might that impact upon them?

When considering the meaning of vacant possession as a pre-condition for a tenant to end their lease via a break clause both parties need to pay close attention. Get it wrong and the tenant may fail to trigger the break clause, leaving the lease in force until the end of the term or until a subsequent successful break. For a landlord, not knowing the meaning could enable your tenant to leave the property when they haven’t complied with their obligations.

So what could vacant possession be?

Vacant of People? Vacant of Goods? Vacant of Refuse? More?

In a recent court case a tenant learnt their understanding of vacant possession and the legal definition of the term were close, but not closes enough. Riverside Park Limited v NHS Property Services Limited [2016] EWHC 1313 (Ch); the tenant had undertaken works at the property to install partitioning to meet their needs; these works had been governed by a historic Licence for Alterations. The tenant served on the landlord a notice triggering a break clause to end the lease. Conditions attached to the break were: 1) to give at least 6 months’ notice to the landlord and 2) to hand back the property with vacant possession.

By the break date the tenant had moved out of the property ensuring it was vacant of people and goods, but what about their partitioning? The landlord argued the partitioning would significantly impede his use of the property for letting purposes; therefore, the property was not vacant. The tenant argued the partitioning formed fixtures therefore under the terms of the Licence for Alterations they could remain at the property.

A joint expert adjudged the partitioning was standard demountable partitioning, therefore, should properly be classified as tenant chattels, benefitting the tenant personally rather than having a lasting improvement to the property. For this reason the Court held vacant possession had not been given to the landlord and the tenant’s attempt to end the lease had been unsuccessful.

A tenant seeking to end their lease by way of a break clause need to pay close attention to the particular terms of their break to ensure it is not frustrated for non-compliance with the precise terms. Landlords should likewise take advice and fully understand the requirements for tenants to end a lease by way of a break clause so a tenant isn’t released from the lease where there is non-compliance.

For advice on your commercial lease and how to trigger or contest a break clause please speak to William Warnock, Bar Graduate Lawyer, in our Poole office (01202 052042).

"NB This article does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article or for any consequences of relying on it, is assumed or accepted by any member of Dutton Gregory LLP."