If you are a tenant of commercial premises, a recent case has served as a reminder of the importance of reading your lease very, very, carefully, and getting good legal advice before commencing strip out works. Break clauses are one of the most litigated areas in commercial property, with courts historically being very strict when interpreting the language used and the effect it will have on the parties' obligations.
Capitol Park Leeds Plc v Global Radio Services Ltd concerned a 24 year tenancy of a commercial unit in Leeds due to expire in 2025. The tenant benefitted from a right to break in November 2017, which it sought to exercise. The break had a common, though now outdated, condition, requiring that the tenant:
“Gives vacant possession of the Premises to the Landlord on the relevant Tenant’s Break Date”.
The words “vacant possession” have been examined and interrogated in numerous cases, with this latest confirming that, when carrying out reinstatement works, a tenant needs to look closely at which items and works should go (part of the tenant’s strip out) and what should stay (landlord’s fixtures or base build). In this instance, the tenant got a bit over-excited and took out elements of both. It removed some floor finishes, ceiling tiles, lighting and radiators as well as bits of the landlord’s base build of the building. In so doing, the court held that the break was ineffective; the tenant had handed back “an empty shell” which was “dysfunctional and unoccupiable” for the landlord. The court looked at the definition of the “Premises” and found that, by removing landlord’s fixtures, the tenant could not deliver vacant possession of the Premises – what it had delivered up was not the Premises as defined in the lease.
Whilst the judgment in this case did not deal with tenants’ fixtures, in many instances, leases exclude tenants’ fixtures from their definition of premises (which was, in fact, what this lease did) and so any failure to remove them by the tenant would be treated the same as if they left their chattels in the premises.
The main takeaway for new leases is to avoid having to give vacant possession in the first place (many leases nowadays are drafted without this as a condition and the Model Commercial Lease recommends not incorporating such an onerous provision).
If, like Global Radio, you are stuck with vacant possession as a break condition, make sure you plan very carefully before you do any work. You could ask your landlord for its view (though it is not required to assist with this and its view should not be relied on entirely) and you should always seek legal advice when exercising your break.