Beware The Break Clause

Year Published: 2016

The recent case of Riverside Park Ltd V NHS Property Services Ltd [2016] is a stark reminder of the need to comply fully with any pre-conditions for exercising a break clause. The conditions in this case were firstly, that at least six months written notice must be given. There was no issue with this. Secondly, the tenant had to hand back the premises with vacant possession. Here lies the problem.

Had vacant possession been given in this case?

The test of whether vacant possession has been given is to be examined from the perspective of the person to whom vacant possession has to be given. In other words, if there is a substantial impediment to the landlord’s use and enjoyment of the property then vacant possession has not been given.

Steven Percy, Property Solicitor at SAS Daniels

Steven Percy, Property Solicitor at SAS Daniels

In the case of Riverside Park, the landlord argued that partitioning was a substantial impediment to his use of the property for letting purposes. The partitioning had been permitted through a licence to alter but was described as a “rabbit warren” and not ideal for letting purposes. The question for the court was whether these alterations were fixtures forming part of the premises or chattels. If chattels this would mean vacant possession had not been given.

What did the experts say?

The experts in this case described the partitions as demountable and not fixed to the structure. Removing them would not damage the property. However it is the degree and purpose of annexation which determines whether that item is a chattel or a fixture. In this case the purpose of the partitions was unique to the tenant. The partitions benefited the tenant rather than effecting  a lasting improvement to the building. The court consequently held that the partitions were chattels. There were so many partitions that they deprived the landlord of physical enjoyment of the premises so vacant possession had not been given. The tenant had failed to comply with the pre-conditions to the break clause.

Key points to note about a break clause and vacant possession:

  1. Vacant possession is hard to define and recognise. So, from a tenant’s perspective it is not recommended to accept vacant possession as a pre-condition to a break clause. Instead, the requirement should be for the tenant to “give up occupation.”
  2. It is vital both when drafting break notice clauses and when sending/receiving a break notice, to review the lease and all supplemental documents carefully to ensure pre-conditions are complied with. Tenants needing to comply with a vacant possession obligation should take a cautious approach and seek advice if there is any doubt as to what can be left behind.
  3. Any timescales to request reinstatement must be reasonable, in order that the break cannot be frustrated.

As demonstrated by this case, it is vital to get the terms of a break clause right from the outset to avoid any confusion and unnecessary disputes further down the line.

If you are a Landlord or Tenant and require further information on break clauses, please contact Steven Percy in our Commercial Property team on 01625 442158.

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