When a break notice is not enough...

When agreeing a lease a tenant will be pleased to be allowed a right to break the term of the lease – this will allow the tenant to serve notice on his landlord to bring the lease to an end on a specified date or dates before the end of the agreed term.  This gives the tenant flexibility to relocate or otherwise end the lease should the property cease to be suitable or required.

A break right appears to allow a tenant to have his cake and eat it.  Offering the security of a decent contractual term with the ability to walk away early.   However tenant break rights are rarely the panacea they might first appear to be.  They are often conditional, and sometimes, for an unwary tenant, fatally so.

Many break rights are still conditional upon vacant possession being given notwithstanding that the Lease Code recommends that instead the precondition should be that the tenant hands back the premises “free from all rights of occupation”. 

So what is the difference?  Clearly if a tenant or third party still occupies the premises at the break date there is little room to argue that the tenant has given vacant possession.  The tenant will have fallen foul of both an obligation to yield up free of third party occupiers or with vacant possession.  

But what about the tenant that has removed all of his belongings, but left the premises with authorised alterations in place without reinstating?  Has vacant possession been given?   Let’s remember that the break is conditional upon vacant possession

This is not simply a question of the landlord’s damages claim for reinstatement, but whether a key condition of the break has been satisfied.  

The recent decision by the Courts in Riverside Park Limited –v- NHS Property Services Limited has reiterated the tests in Cumberland Consolidated Holdings –v- Ireland.    If a tenant is obliged to give vacant possession then he is obliged to give the landlord unimpeded physical enjoyment of the premises.  Any failure to render such physical enjoyment will mean vacant possession has not been given. 

Riverside Park demonstrated that where premises are leased on an internal demise basis (usually in a lease of part of a building that excludes all structural parts), demountable partitioning that is not attached to the structure and that can be removed without damaging the structure can constitute such a physical impediment so as to deprive the landlord of sufficient physical enjoyment that vacant possession cannot be given.   

What is important to recognise is that in Riverside it was the extent of the partitioning that deprived the landlord of vacant possession.  Would a less extensive area of partitioning have had the same affect? 

If the partitioning had become a fixture then possibly (depending on how the lease has been drafted – crucially if the premises are defined to include tenant’s fixtures in the lease), the partitioning could have become part of the premises and therefore a break condition to give vacant possession of the premises would not have been breached by the existence of the partitioning at the break date.

But what does this mean for landlords and tenants?   If one thing is certain, a vacant possession break condition is not!

The Lease Code recommends that the premises be handed back free from all rights of occupation.  This is with good reason.   What landlords and tenants surely want to achieve is certainty.  

No one wants to be embroiled in an argument as to whether a tenant is still a tenant long after a break date has expired – especially when one considers that at day one of the lease everyone knew it was a possibility that the break may be exercised.   The Lease Code promotes a certainty that is surely desirable.   Something for the landlords and tenants to consider long before the break notice is served.

At Goughs we can help landlords and tenants at all stages.  Whether that’s with the drafting of the lease, the registration, or helping with problems caused by a failure to register.  For more information or assistance with a commercial lease please contact a member of our Commercial Property team today