Meaning of ‘Vacant Possession’ confirmed by the Court of Appeal
On 5 July 2021, the Court of Appeal overturned the decision of the lower High Court in the case of Capitol Park Leeds Plc and Capitol Park Barnsley Limited -v- Global Radio Services Limited .
This case considered the validity of exercising a break clause by the tenant, Global Radio Services Limited (Global Radio). On 15 February 2017, Global Radio sought to terminate its lease, by exercising a conditional break clause.
In order to successfully terminate the lease, Global Radio needed to satisfy the following condition: “[give] vacant possession of the Premise to the Landlord”. The lease defined “Premises” as including “all fixtures and fittings at the Premises whenever fixed”.
In anticipation of the break date, and with the break conditions in mind, Global Radio stripped the premise of various items, including ceiling grids, ceiling tiles, fire barriers, floor finishes, window sills, office lighting, smoke detection system, emergency lighting, radiators, heating pipework to serve radiators; items deemed to be the landlord’s fixtures and fittings.
The landlord contended that such actions taken by Global Radio did not constitute ‘vacant possession’ on the basis that the Premises had not been given back and therefore the break conditions had not been satisfied and the lease had not terminated.
The decision of the lower High Court was in favour of the landlord, on the basis that Global Radio had gave back “considerably less than ‘the Premises’” and this was a substantial impediment to the landlord’s use of the premises. This was widely viewed in the industry as a harsh decision, which could significantly affect the practical operation of many break clauses.
The Court of Appeal considered whether Global Radio’s removal of the above items meant that vacant possession of the premise had not been given to the Landlord.
Newey LJ noted that whilst a tenant must strictly comply with the conditions of the break clause in order to exercise that clause, that does not mean that the conditions should be strictly “interpreted so as to favour the landlord”.
The break clause in this lease made no mention of repair or condition, which supported the notion that the break clause was not concerned with the physical state of the premises. The remedy for that was compensation for whatever loss suffered by the landlord.
The appeal was granted on the basis that the break conditions in the lease did not concern the physical state of the unit (although noting that the premise has been left in a “dire state”) but required the tenant to leave the premise free of “people, chattels and interests”.
This decision gives some much-needed clarity on the interpretation of ‘vacant possession’ as a pre-condition to the exercise of a break clause.