Vacant possession in break clauses

27th July 2021 Commercial Litigation

Earlier this month, the court of appeal overturned the decision of the High Court in the case of Capitol Park Leeds plc v Global Radio Services Ltd and clarified the meaning of vacant possession in break clauses.

High Court decision

In the first instance, it was held by the High Court that after giving notice to terminate, the tenant, by stripping out various key features of the Premises including ceiling tiles, lighting and heating and then not replacing them before moving out, had failed to comply with a break clause condition to give vacant possession of the Premises.

The court considered that the elements removed by the tenant fell within the definition of the Premises, and as the tenant failed to return them this meant the break condition had not been satisfied and the lease continued. The tenant appealed this decision.

Court of Appeal

The Court of Appeal was in agreement with the tenant and overturned the decision of the High Court. It held that the condition attached to the break clause was not concerned with the physical state of the property, but rather that the tenant must return the property to the landlord free from people, chattels and legal interests.

The Court of Appeal also observed that the break clause condition contrasted with the yield up covenant requiring 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”. As the break clause failed to mention repair or condition, but the yield up covenant did, this further supported the tenant’s case that the break clause did not relate to such matters.

It was noted that the landlord was able to take action against the tenant for the loss and damage suffered as a result of the strip out works, but this didn’t prevent the valid exercise of the break clause, and therefore, the tenant could return the premises as they were on the break date and the landlord could pursue the tenant for compensation.

The Court of Appeal’s decision is good news for tenants who have vacant possession break conditions to comply with, and illustrates that although break clauses should be strictly complied with, they won’t always be interpreted adversely to the tenant.

This blog is co-authored by Danielle Embury and Peter Barnard. 

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Peter Barnard is a Partner located in Manchesterin our Commercial Litigation department

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