Out-Law / Your Daily Need-To-Know

High Court: tenant's failure to remove partitioning meant no vacant possession

Out-Law News | 11 Aug 2016 | 9:50 am | 3 min. read

A tenant was unable to exercise a break clause in a commercial lease due to its failure to remove partitioning that it had installed. This meant it had not provided vacant possession of the property, which was required by the lease as a condition of effective exercise of the break clause, the High Court has ruled.

NHS Property Services, which took over the lease after the local primary care trust vacated the premises, will now be liable for any outstanding obligations under the 10-year lease, which runs until September 2018.

The lease contained a break clause at the five-year point, which could be exercised with six month's notice by the tenant but which would only be effective if the property was fully vacated on or before the break date. The tenant attempted to argue that the partitioning should properly be classed as 'tenant's fixtures and fittings' which had become integrated into and part of the property and which there was no obligation to remove. 

However, after reviewing previous case law, Judge Saffman ruled that the partitions were 'chattels' that the tenant was able to remove, rather than fixtures. The fact that they had been left on the property meant that the landlord, Riverside Park Ltd, was "deprived ... of the physical enjoyment of the premises", he said.

"The very fact that the [tenant] chose to erect demountable partitioning and not to affix the partitioning to the structure … suggests that it was seen by the [tenant] as temporary," the judge said.

The licence to alter contained in the lease required that the partitioning be fully fixed to the property, and the judge was satisfied that this was not the case here. He added that the fact that the landlord had not provided any evidence that the presence of the partitioning had prevented it from renting the property to another tenant was irrelevant to the question of vacant possession.

"I do not accept that because there is no specific evidence that the [landlord] cannot let the premises to anybody else that it has failed to establish that its enjoyment of the premises has been compromised," he said.

"In addition, I do not accept that the [landlord's] enjoyment of the premises is affected by the fact that it was never their intention to occupy it themselves but rather to let it. In this context in my view the [landlord's] enjoyment of the premises encompasses having it in a condition in which it feels that it is a more attractive proposition to prospective lessees," he said.

The partitioning was the main focus of the case, although the tenant had also left behind some smaller items including kitchen units, floor coverings and window blinds. Although the tenant's case failed on the partitioning point, the judge said that it would have been "odd if something as substantial as partitions were held to be chattels and other less substantial articles ... were held to be fixtures".

Judge Saffman said that even if he had been wrong and the partitions and other items were in fact removable 'tenants fixtures', the tenant would still have failed to properly exercise the break clause. This was because the definition of the demised property specifically excluded tenant's fixtures. If he had been wrong on this point and the partitions and other items were part of the property, the judge said that the licence had ceased to have effect because the tenant had not complied with the terms of an alterations licence when installing the partitioning, including seeking prior approval for the works from insurers and giving notice to the landlord of start and completion dates. This meant that the tenant was obliged to remove the alterations and failure to do so meant vacant possession had not been given, he said.

The judge acknowledged that his conclusion could be seen as "harsh", as it "essentially holds the [tenant] responsible for ongoing substantial rent all for the sake of a failure to undertake a few thousand pounds worth of work". However, he pointed out that there was "no room for general considerations of fairness or conduct" when assessing whether the conditions attached to the valid exercise of a break clause had been met.

"This decision brings back into focus the extreme importance for tenants of detailed attention to how their alterations during the course of the lease should be dealt with if they wish to ensure they comply with the common, indeed almost universal, pre-condition on tenant break clauses, of providing vacant possession," said property law expert Siobhan Cross of Pinsent Masons, the law firm behind Out-Law.com. "This may even need to include consideration of whether any alterations were carried out strictly in accordance with obligations in licences to alter as this may impact on obligations to remove alterations."

"For landlords the decision provides a reminder that if looking to defeat the exercise of a tenant's break clause, attention to the required treatment of alterations may well provide grounds to defeat the break," she said.