Riverside Park Limited v NHS Property Services Limited  EWHC 1313 (Ch)
Often, the successful operation of a break option contained within a lease will be dependent upon a number of conditions which are attached to the break. One of the most common conditions is the requirement to deliver up the premises with vacant possession. What vacant possession means is often the cause of debate, as this case shows.
On 24 September 2008, Riverside Park Limited (RPL) granted a lease of first floor open plan office premises to Wirral Primary Care Trust (WPCT) for a period of 10 years. The lease contained a break clause which stated that the tenant was entitled to terminate the lease on 24 September 2013 provided that the break notice was served at least six months before that date. The clause also provided that any notice exercising the break would only be effective in determining the lease “if the Tenant gives vacant possession of the Premises to the landlord on or before (24 September 2013)”.
On 18 March 2013, Wirral Primary Care Trust served notice exercising the option to break. On or about 1 April 2013, the lease transferred to NHS Property Services Limited, which also wished to break the lease on the break date of 24 September 2013.
On the same day as entering into the lease, the landlord and WPCT entered into a Licence for Alternations permitting WPCT to carry out works to the premises, which included the installation of a large amount of partitioning. Amongst other things, the partitions were standard demountable metal stud partitions (and one folding partition) with painted plasterboard on both sides and a fixed aluminium skirting. They were not fixed to the structural slabs below the raised floor or above the suspended ceiling.
It was not an issue in dispute that the requisite six months’ notice had been given. However, the landlord argued that the break notice was not effective because the tenant had not given vacant possession of the premises on the break date, as required under the break clause.
The landlord’s position was that the presence of the partitioning after the break date meant that the tenant had failed to yield up the premises with vacant possession and, accordingly, the notice purporting to exercise the break was ineffective. The tenant argued that works should properly be seen as tenant’s fixtures and fittings which had been integrated into the premises and that there was a right but no obligation to remove them. The tenant argued in the alternative that if the works were chattels, vacant possession had been given because the partitions did not substantially interfere with the enjoyment of the premises.
The Court decided that the partitions were chattels and not tenant’s fixtures. The configuration of the partitioning was held to be unique in that it resulted in a series of small offices which was for the tenant’s benefit. The very fact that the tenant chose to erect demountable partitioning and not to affix the partitioning to the structure suggests that the partitions were seen by the tenant as temporary.
The partitions could easily be removed without damage to the partitions themselves or to the premises. Applying the well-known test laid down in NYK Logistics Ltd v Ibrend Estates (2011), the Court held that the existence of the partitions “substantially prevents or interferes with the enjoyment of the right of possession”.
The partitions were not held to be part of the premises and therefore the landlord had successfully established that vacant possession had not been given and accordingly, the break was ineffective. The tenant remained liable for rent and other liabilities under the lease until the end of the contractual term.
This case is a useful reminder about the need to comply fully and precisely with any conditions for exercising break rights. The terms of the lease and any licence for alternations should be checked carefully when exercising a break option. Parties choosing to exercise a break clause under a lease should ensure that they take appropriate advice early to ensure that they are clear about what is required to satisfy the break conditions, particularly where there is an obligation to give vacant possession.
It is ultimately a question of fact as to whether an item is a chattel or a fixture so each case should be considered on an individual basis. It should be noted that the Lease Code 2007 (which is voluntary) states that a break right should not be conditional upon the giving of vacant possession. The initial negotiation and drafting of the break clause is as important as the compliance with its conditions.