A failure to break…

The case concerned a broadcasting studio in Leeds which was let on a 24-year lease from 2001. The lease contained a tenant break right in November 2017. The property was surplus to the tenant’s requirements and it served a notice in February 2017 seeking to exercise the break.

The break right was conditional upon the tenant providing “vacant possession of the Premises……” on the break date. 'Premises' was a defined term and included the original building on the property and the landlord’s fixtures.

Extensive reinstatement works were required to hand the property back in the condition required by the lease. The tenant stopped the reinstatement works part way through the break notice period with a view to reaching a negotiated financial settlement and surrender with the landlord. By this point the tenant’s contractors had already stripped out elements of the original base build and also some landlord’s fixtures.

Unfortunately for the tenant, by the time it became clear that the parties were not going to reach agreement, there was insufficient time for the tenant to carry out the remaining works and replace the elements of base build and landlord’s fixtures which it had removed. The property at the break date was an ‘empty shell’.

Vacant possession of the property

The tenant sought to hand the property back on the break date arguing that despite the fact it may be in breach of covenant in respect of the repairing obligations under the lease and therefore liable for dilapidations, it nevertheless had complied with the break condition to give vacant possession. The tenant’s position was that the vacant possession condition did not require an assessment of whether the physical condition of the property was as required by the lease, or indeed any investigation of the tenant's repairing obligation. It was simply a question of handing back the property free of people, chattels and other legal interests. The tenant noted that the landlord had a separate remedy for any disrepair.

The landlord argued that by handing the property back minus the various fixtures and features which had been stripped out and in a shell condition meant that the tenant had not complied with the vacant possession condition. The landlord’s view was that the property being handed back should be ‘the Premises’ as that term was defined in the lease.

Whether or not the break condition had been complied with was, therefore, a question of interpretation and in this case the High Court found in favour of the landlord.. The court found that by adopting the definition of ‘the Premises’ which described what was to be handed back, the landlord was guarding against exactly the situation which had arisen - namely a tenant handing back an empty shell of a building which was ‘dysfunctional and unoccupiable’. The tenant had not given back vacant possession.

The test for vacant possession included the right to actual unimpeded physical enjoyment of the property. The court held that in this case the physical condition of the property was such that there was a substantial impediment to the landlord's use of the property, or a substantial part of it.

Estoppel

Also considered in the case was a meeting between the parties which took place between the parties’ respective surveyors in June 2017 during which discussions took place about the possibility of a negotiated financial settlement being reached in satisfaction of the tenant’s dilapidations liability. The tenant’s position was that an understanding had been reached between the parties at this meeting that the tenant’s contractors would stop the ongoing reinstatement works in order to allow for a negotiated settlement to be reached. The tenant argued that the landlord was therefore estopped from relying on the tenant’s failure to comply with the break provision to give vacant possession. The landlord’s position was that whilst a negotiated settlement remained a possibility following the meeting, it was clear that any cessation of the works remained at the tenant’s risk; there was no agreement and no estoppel. Crucially there was no correspondence between the parties either following the meeting or else in the period leading up to the break date which documented the basis on which the tenant’s works had been halted. The court held that the tenant had not established, on the facts, that the landlord was estopped.

Comment

The facts in this case are unusual and required the court to consider the obligation to deliver vacant possession in the context of items being removed from rather than left at the property as at the break date. Conditional break clauses can often be tricky to comply with and this case serves as another reminder of the court’s strict interpretation of such conditions and the difficult issues that can arise in the context of achieving vacant possession, including the logistics of actually getting the works done in time. The estoppel issue further highlights the importance of formally documenting matters so that there is clarity as to the parties’ intentions.

Permission to appeal to the Court of Appeal has been granted.

Capitol Park Leeds plc v Global Radio Services Limited [2020] EWHC 2750 (Ch)