The case concerned the lease of a three-storey commercial unit outside Leeds, constructed in 2000. The lease was assigned to Global Radio Services in 2014. The break clause in the lease provided that the tenant should “give vacant possession of the Premises to the Landlord on the relevant Tenant’s Break Date”. Nothing too revolutionary there.
In advance of the break date of 12 November 2017, Global had stripped the unit, including the removal of ceiling grids, ceiling tiles, floor finishes, pipework, radiators, lighting and smoke detection systems. The property was left in a terrible state of repair. As all of the stripped-out items had been part of the original build specification, they fell into the legal category of landlord’s fixtures or comprised part of the fabric of the building itself.
The definition of “The Premises” in the lease included “all fixtures and fittings at the Premises whenever fixed”. The landlord therefore argued that, by removing fixtures, the tenant had failed to give back “the Premises” as required under clause 10.1.4. The judge at the first hearing agreed with the landlord, which somewhat startled the legal community, however the Court of Appeal has now overturned that decision.
The appeal court held that the vacant possession condition to the break right was not concerned with the physical state of the unit, but with whether the landlord was recovering it free of “people, chattels and interests” in accordance with the earlier line of authorities on the subject. Nothing in the break clause required the tenant to have complied with its repairing covenants under the lease. While the yield up covenant in the lease did require the Premises to be yielded up “in a state of repair, condition and decoration which is consistent with the proper performance of the Tenant’s covenants”, the break clause made no mention of repair or condition. Further, the landlord was not left without a remedy for the state of repair and condition in which the premises were left, because it retained its right to claim damages for breach of covenant.
Interestingly, for those concerned about reinstatement of alterations in this context (partitioning being the most common concern), the Court of Appeal stated “the Premises” means the premises as they are from time to time, and that they should be handed back as they are on the break date. This would therefore include alterations made during the term, meaning they would not be required to be removed. We must be mindful, however, that in the case of partitions there is always the argument that they are chattels, in which case removal is still the safest option. This is to ensure that there is no physical impediment which substantially prevents, or interferes with, the landlord’s enjoyment of the right of possession of a substantial part of the property.
Tenants exercising options to break where the only condition is to give vacant possession must simply return the premises as they are on the break date, regardless of the state of repair, free of the “trilogy of people, chattels and interests”. The landlord’s remedy is to pursue a claim in damages for any losses sustained as a result of any disrepair, but the break will not be frustrated. Every break right is different, so close attention must be paid to the drafting in each case. It is also crucial to examine all items in the property, to establish whether they are fixtures or chattels.
Client Alert 2021-193
