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What is Vacant Possession?
Any conditions attached to a break clause must be strictly complied with. If they are not, the break will not take effect and the lease will continue. Commercial tenants with a break clause in their lease requiring vacant possession run the risk of ineffective termination due to failure to remove their belongings from the property.
What is vacant possession?
Case law provides that vacant possession is not given if there’s a substantial impediment to the landlord’s use and enjoyment of the property. This could be physical, such as the tenant’s belongings being left in the premises; or because people are in the premises, either legally with an underlease or licence which entitles them to be there; or because they have been employed to carry out works or provide security; or because they’re trespassing.
In a recent case, the tenant had taken a lease of open plan premises. It then carried out various works including installation of removable partitioning. The tenant subsequently exercised the break clause in the lease and vacated the premises, leaving the partitions. The landlord argued that failure to remove the partitions meant that the lease continued as vacant possession had not been given.
The tenant argued the partitions were not belongings, but instead tenant’s fixtures which had become part of the premises. There was therefore no obligation to remove them in order to give vacant possession.
The High Court ruled that the partitions were in fact belongings. Though they were fixed to the floor and ceiling, they could be removed without causing damage to the premises and were not therefore tenant’s fixtures. As they did form an impediment to the landlord exercising its right of possession, the tenant had not satisfied the condition and the break clause had not operated.
Avoiding the pitfalls
When negotiating a break clause the tenant would be well advised to ensure that vacant possession is not a condition of the break; or alternatively that it is watered down so the tenant must give up the premises free from occupation. This would leave any questions as to belongings as part of a dilapidations claim rather than preventing the break. Alternatively, speaking to the landlord and negotiating a schedule for what needs to be removed would lessen the risk of dispute later on.
Please contact our Commercial Property team for further information or to make an appointment.