My way

Last time in Motor Matters we discussed some pitfalls relating to payments under leases. This time we look at another common pre-condition in termination clauses, the obligation to give the landlord ‘vacant possession’ by the expiry date of the tenant’s notice. Most tenants assume that they know what that phrase means in common parlance. But what does it mean in law? A recent case gives us some clues.

No one is innocent

Here a tenant occupied an office building and served notice to terminate the lease early. The lease contained a requirement for the tenant to give vacant possession on expiry of its notice. The tenant’s predecessor (under the same lease) had carried out extensive works to subdivide the original open-plan space into cellular offices by erecting partitioning. While the predecessor had asked the landlord for permission to do the works, they had not been carried out strictly in accordance with the terms of that consent.

Problems

When the tenant moved out of the building it left behind all the partitions. The landlord refused to accept that the tenant had complied with the relevant vacant possession condition, arguing that the partitioning works interfered with the intended layout of the building as an open plan office. The tenant tried to argue a number of legal points, including the fact that because the landlord had agreed to their installation, it could not object when the partitions were left behind at the end of the lease.

No feelings

Here (as is often the case) the court sided with the landlord. The judge made two key points.

  1. As the original works had not been carried out in compliance with the terms of the original consent, the works were unauthorised. The other lease terms made it clear that the tenant was responsible for removing unauthorised works and it was obliged to do so, come what may.
  2. Vacant possession (in the legal sense) does not just mean leaving the building clear of people; it includes leaving it clear of anything else which would “substantially prevent or interfere with the enjoyment of the right of possession of a substantial part of the property” (a passage taken from another leading case on the meaning of vacant possession which the judge quoted). In this case the works had significantly affected the configuration of the building. It was not suggested that the building was rendered useless by the alterations, but it was sufficiently different that the landlord could not re-let the offices without carrying out substantial works. And that meant that the vacant possession requirement had not been met and in turn that the lease had not been properly terminated so that the tenant continued to be liable for the rent and outgoings.

Watcha gonna do about it?

This looks like a terribly unfair decision for the tenant; after all, it may not have known that its predecessor’s works were not carried out in compliance with the earlier consent. Nonetheless, thorough due diligence and due care to all the lease provisions (with timely legal input) would have saved the day. This can be particularly important in the context of motor dealerships as franchisees frequently have to carry out extensive works to meet franchise requirements. Being clear with the landlord about reinstatement obligations could avoid anarchy in the UK.