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Vacant possession and break rights

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By Adrian Price

The effective exercise of a Tenant's break right under a lease is well known for being a minefield for commercial Tenants, where any failure to strictly observe and perform conditions attached to a break right may enable a Landlord to thwart the break to the detriment of the Tenant.

In recent years, there have been a series of decisions on the performance of conditions attached to break rights, and the recent high Court judgment in Riverside Park Limited V NHS Property Service Limited [2016] EWHC 1313 (Ch) ("Riverside") has now provided useful guidance on the interpretation of the definition of "vacant possession" within the context of exercising a break right. The requirement for Tenants to give "vacant possession" upon exercise of a break right is commonly encountered, and in simple terms requires the Tenant to leave the premises empty and free of all of its belongings.

Previous case law had already established that security measures left behind at premises to prevent vandalism would not put the Tenant in breach of a vacant possession condition, whereas occupation of premises by contractors carrying out repair work beyond the break date would constitute a breach. In Riverside, the question the Court needed to determine was whether previous works that had been carried out to alter the premises amounted to "fixtures" which formed part of the premises themselves, or "chattels", namely moveable items belonging to the Tenant.

In Riverside, the property was let as an open-plan workspace. Under a licence for alterations, the Tenant had installed various items including an intruder alarm, kitchen units and partitioning (the "Works") which had not been removed by the break date.

The judge found there was no vacant possession and the break notice had failed. The Works prevented or substantially interfered with the Landlord taking immediate possession of the property on the break date. Specifically, the partitioning was comprised of standard demountable partitions, in no way fixed to the structure and considered to be for the sole use and enjoyment of the Tenant rather than providing a lasting improvement to the building.

The Riverside case provides an important reminder of the need to fully comply with conditions for exercising break rights. in particular, within the context of giving "vacant possession", it confirms the importance for Tenants to assess what works and alterations may have been carried out during the term of the lease, and carefully consider whether or not those works may amount to fixtures or chattels, and whether they should therefore be removed in order to effectively comply with any vacant possession condition.

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