217: Decision overturned on break clause exercised at empty shell of premises

Following on from our last blog post on break rights, the Court of Appeal has overturned a High Court decision and decided that a break right requiring vacant possession was actually satisfied even where the premises was left incapable of use.

In Capital Park Leeds v Global Radio Services, the High Court held that a tenant had not complied with a requirement to give vacant possession as condition to a break clause in a commercial lease. The tenant had left an empty shell by stripping out from the premises substantially more than it should have, including removing the ceiling features, floor features, window sills, pipework, ventilation ducts, lighting heating and more.

The High Court had held that the break clause was not validly exercised as the commercial premises delivered up on the break date was no longer the same premises as defined in the lease. The tenant was deemed not to have not given back the premises with vacant possession.

The Court of Appeal has overturned this decision and decided that vacant possession requires the tenant to return the property to the landlord free from the usual ‘trilogy of people, chattels, and interests’.

Global Radio Services as tenant had given vacant possession on the break date, even though it left an empty shell. To interpret the situation otherwise would have unintended implications for the parties and undermine business common sense.

The landlord’s remedy should have been to seek compensation from the tenant for the losses it had suffered from the substantial features having being removed from the building.

Indeed, the Court of Appeal made it clear that a tenant wishing to exercise a break clause has to comply with any conditions attached to the exercise of the clause, but those conditions should not necessarily be interpreted so as to favour the landlord.

This case gives clarity to the meaning of ‘vacant possession’ as a condition, which means removal of people, chattels and interests.