The High Court has yet again been asked to consider the often controversial issues associated with conditional break clauses and in particular the test of vacant possession and the need to remove chattels.
In the case of Riverside Park Ltd v NHS Property Services Ltd, the tenant took a lease of open plan offices. After the lease commenced the tenant installed demountable partitions within the building to create cellular offices.
The tenant then exercised its break clause in 2013 and left the partitions in place. As a result, the landlord claimed that the tenant had not complied with the condition to give vacant possession.
The High Court was asked to consider whether vacant possession was given by examining if the partitions were chattels or fixtures and whether leaving them in situ substantially interfered with the landlord’s right of possession.
Handing down its decision late last month, the court held that the partitions were indeed chattels even though they were affixed to the raised floor and suspended ceiling. The court made this decision on the basis that they were not affixed to the structure of the property and could be removed without damage to the partitions or the property. The Court also held that the alterations substantially interfered with the landlord’s right of possession.
As a result, the tenant’s break notice was ineffective to determine the lease and the lease and the tenant’s liability for rent continued for a further five years.
This case provides yet a further example of the expensive consequences of failing to draft and/or exercise a break clause correctly.
Whilst each case will be determined by its specific facts, this could provide some guidance on which items are to be considered as chattels rather than fixtures.
Tenants considering using a break clause must take the appropriate advice early and ensure that they are clear about what needs to be removed. Failure to do so could mean that the break option has not been operated correctly and this ultimately could be very costly.