The case of Riverside Park Ltd v NHS Property Services Ltd (2016) has held that a break option conditional on vacant possession had not been operated successfully because the tenant had left partitioning in the property.
Riverside Park Limited (the landlord) granted a ten year lease of first floor premises in 2008. NHS Property Services Ltd (the tenant) became tenant in 2013 when a notice to break the lease had already been served by its predecessor. The break clause provided that the notice would only be effective to end the lease 'if the tenant gives vacant possession of the premises to the landlord' on or before the break date. There was no dispute about validity of the notice itself.
The landlord argued that vacant possession had not been given at the break date because the tenant had left behind a large amount of partitioning, kitchen units, floor coverings and other items. These items were not in the property when the lease was granted and had been brought in by the tenant pursuant to a licence for alterations dated the same day as the lease (the licence).
The tenant argued that vacant possession had been given because the items left behind were tenant's fixtures which had become part of the premises, and as the break required that vacant possession of the premises be given, their presence did not constitute a breach of this condition. Even if they were chattels they did not substantially prevent or interfere with the landlord's enjoyment of the right to possession of the property.
The court had to ask the following questions:
- were the items left behind chattels or tenant's fixtures?
- if chattels, did their presence mean vacant possession had not been given?
- if tenant's fixtures, was the tenant obliged to remove them such that its failure to do so meant vacant possession had not been given?
The main focus was on the partitioning which formed a series of small offices within the premises akin to a 'rabbit warren'.
The single joint expert instructed by the parties attested that the partitioning was standard demountable partitioning, not fixed to the structure of the property but constructed on top of the raised floor and screwed to the suspended ceiling. It had not been installed in accordance with the licence.
The court reviewed the case law on chattels and fixtures and how to distinguish between them. To do this it considered the degree and purpose of annexation.
The court held that all of the items were chattels as they were only 'slightly attached' to the premises. They could be removed intact to be used elsewhere and were brought in to benefit the tenant rather than being a lasting improvement to the premises. Therefore, they were not part of the premises.
Having established that the items were chattels, had vacant possession been given on the break date? To decide this the court considered whether the presence of the partitioning substantially impeded or interfered with the landlord's right to possession of a substantial part of the property. The court held that it did. Accordingly, vacant possession had not been given and the break option had not been operated successfully.
The court went on to say that even if this was wrong and the items were tenant's fixtures, the break would still have failed. The definition of 'premises' in the lease specifically excluded tenant's fixtures. The tenant argued that the licence required that the items only be removed if the landlord requested it. However, the court found that the licence had ceased to have effect because of the tenant's several breaches of it. One such breach was the failure to construct the partitioning in accordance with the licence terms.
The conclusion that the partitioning was a chattel rather than tenant's fixture is debatable but the clear lesson here is that if there is a condition in the break clause that requires vacant possession, it is only too easy to breach it by leaving items in the premises, including items that might not look like chattels at first sight.
If possible tenants should avoid agreeing to give vacant possession as a condition of a break clause. Otherwise the terms of the lease and any licences should be thoroughly checked for definitions and compliance prior to the break date.