How vacant is vacant possession?

Author: David Linklater

As I have mentioned in a recent blog, break clauses are often tricky to operate and a tenant may have to meet certain conditions in order to ensure that the break option has been validly exercised.

A condition sometimes found in break clauses is that the tenant must on the break date give to the landlord vacant possession of the premises.  Whilst this sounds a simple enough proposition, sometimes tenants do fall foul of this requirement.

The Court of Appeal was called to rule on such a situation in the recent case of NYK Logistics (UK) v Ibrend Estates BV.

The facts of the case are straightforward.  The tenant served a break notice and one of the conditions of the break option was that the landlord was to be given vacant possession on the break date.  The tenant commenced works to put the premises into the condition required by the lease, but as the break date approached, it became apparent that the works would overrun.

At that stage, the tenant entered into discussions with the landlord, seeking permission to remain in occupation until the works were completed, without prejudicing the break right.  No agreement to that effect was reached.  On and after the break date, the tenant remained in occupation of the premises, still had keys and had security guards in place, and had not cleared the premises of its belongings.

The tenant believed that the lease ended on the break date, claiming that by entering into negotiations with the tenant, the landlord had waived the requirement for vacant possession.  The landlord stated that it was never its intention to waive the requirement.

The case served as a useful reminder of the questions that the Court will ask when considering compliance:

•    Was the party that was required to give vacant possession still actually using the premises for it own purposes?

•    Is the physical condition of the premises in such a state that there is no substantial impediment to use of the premises, or a substantial part of it, by the party taking the premises?

The Court of Appeal found that the tenant had taken no steps to comply with the first point above.  The second point is rarely problematic and certainly wasn’t in this case, as physical impediments have to be onerous to the extreme in order to cause a tenant to fail that test.

The Court also found that there was no evidence of waiver.  Waiver is a very difficult concept to prove and really should only be used as a last resort, rather than something to be relied on prior to an event.

This judgment reiterates the importance of taking legal advice prior to exercising any break option and highlights the need to seek clarification on any points of ambiguity.  Conditions must be strictly adhered to and landlords (and the Court) are unlikely to assist a tenant that falls foul of those conditions.

For further information about our Property Litigation services or to discuss a particular matter or situation in more detail, contact David Linklater at our St Albans office by email at david.linklater@salaw.com or on 01727 798000.

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