Conditional break clauses: the courts require strict compliance for a break to become effective

When a tenant signs a lease containing a conditional break clause, it is imperative that the tenant completely understands the conditions associated with exercising the right to break the tenancy and complies fully with the terms set out in the lease.

It may be the case that the tenant believes they have activated the break clause but, because they have not fully understood and complied with the conditions, the tenancy may still be in force and the tenant still liable. This is the finding in the High Court case of Riverside Park Limited v NHS Property Services Limited 2016 EWHC 1313 (Ch).

The facts of the case revolve around a 10-year lease of Suite 4 Unit 2 Riverside Park, Bromborough, Wirral, dated 24 September 2008, and granted by the claimant, Riverside Park Ltd, to Wirral Primary Care Trust (WPCT). The premises were on the first floor of a building owned by the claimant. When the lease was written the premises were open plan with no partitions.

The lease contained a break clause entitling the tenant to terminate the lease on 24 September 2013 provided that a notice of the intention to exercise the break was served at least six months before that date. The clause further provided that any notice exercising the break would only be effective: "if the Tenant gives vacant possession of the Premises to the landlord on or before (24 September 2013)".

WPCT served notice on the claimant exercising the option to break on 18 March 2013. Around 1 April 2013 the residue of the term became vested in the defendant, NHS Property Services Ltd, who became liable thereafter to make the payments due under the lease and to comply with the other obligations that the lease imposed upon the tenant. It also wished to take advantage of the opportunity to break the lease on the break date of 24 September 2013.

The claimant did not dispute that the notice served by WPCT was served at least six months before the break date of 24 September 2013; but it contended that the notice was not effective because the defendant did not give vacant possession of the premises. Essentially, WPCT had left behind: partitioning, kitchen units, floor coverings, window blinds, an intruder alarm, and water stand pipes within a large meeting room. None of this was in place at the commencement of the lease.

The claimant said that the presence of these items on the premises, after the break date, resulted in the failure by the defendant to give back the premises with vacant possession; and that, accordingly, the notice to exercise the break was ineffective. Further, key fobs had also not been returned and the intruder alarm had not been deactivated.

The claimant sought a declaration that the lease had not come to an end and an order that the defendant, as the successor to WPCT, should comply with the continuing obligations under the lease including rent and other sums – at that point amounting to £111,766.50 but climbing.

The defendant argued that vacant possession was given, the lease did terminate on 24 September 2013 and its obligations under the lease ceased then. The defence was that the partitioning and other objects left behind were the tenant's fixtures and fittings which had been integrated into, or annexed to, the premises and thus now formed part of the premises; and there was a right but no obligation to remove them so their presence could not be an impediment to vacant possession of the premises.

The issues to be determined were: Were the partitioning and other items chattels (in which event they did not form part of the premises) or were they tenant's fixtures and fittings? If the former, did their existence in the premises as at the break date mean that, in law, vacant possession had not been given? If the latter, was the tenant obligated to remove them notwithstanding that they were fixtures and fittings such that its failure to do so meant that it had failed to give vacant possession?

For there to be vacant possession there were two tests to be satisfied. Firstly WPCT must not continue to claim a right to use the premises for their own purposes. The judge found that this was not the case despite WPTC leaving the alarm activated and failing to return all keys. The second test was whether the chattels left on the premises by WPCT were “an impediment which substantially prevented or interfered with the claimant’s right of possession of a substantial part of the property”. Here the judge decided that the partitioning was such an impediment and vacant possession had not therefore been given. This meant that the break had not been truly exercised. The lease was therefore continuing and valid, rendering the tenants liable for the rent for the remainder of the term of the lease. Because the claimant succeeded in relation to the partitioning it was not necessary to decide whether the other items left behind by WPTC also prevented vacant possession from being given.

Even if the works and particularly the partitions were not chattels but fixtures or otherwise formed part of the premises, His Honour Judge Saffman said that he would still have found, on the facts of the case, that there was an obligation to remove them [because they had been installed in breach of licence] and that their presence in the premises on the date of purported termination of the Lease meant that vacant possession of the premises had not been given.

He concluded: “It may be that such a conclusion is seen as harsh. After all, it essentially holds the Defendant responsible for ongoing substantial rent all for the sake of a failure to undertake a few thousand pounds worth of work . . . But . . . there is no room for general considerations of fairness or conduct in the context of an assessment as to whether the conditions attached to the valid exercise of a break clause have been met.”

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