Avoiding the voids…
You’re the landlord of a property in a location where re-lettings are proving difficult at the moment. Rents have fallen and there are several similar properties near to yours which are vacant.
You thought you were okay as you had a strong tenant in the property on a ten year lease with 5 years left to run. But that tenant has served a break notice and has left the property. You’d desperately like to keep the tenant if you can as the departure is going to have a marked impact on the capital value of the property.
Is there anything you can do?
Check the notice
The first thing to do is to check the break notice itself. For a break notice to be valid it must be in the correct form, served properly on the correct person, at the correct time and reference the correct dates. It sounds simple, but it’s surprising how easy it is to miss something or slip up, and that can be fatal for tenants.
Fortunately for the tenants (but unfortunately for you) your lawyer checks the notice and those related matters, but there are no grounds for a challenge. So, is it all over?
Most break clauses are conditional on the tenant doing certain things. Where there are conditions, the law says that the conditions must be strictly complied with if the exercise of the break is to be effective. So even seemingly trivial breaches might trip up an unwary tenant.
Older leases often had multiple detailed conditions that needed to be complied with for the break to be effective. For example, a requirement for the tenant to have complied with all of its obligations in the lease was common. Over the years tenants became aware that conditions like that rendered breaks almost useless, and it is now widely accepted in modern leases that it’s only appropriate to have limited conditions.
Your lawyer checks your lease and tells you that it is a fairly typical modern lease. The conditions to the break are limited to requiring the tenant to have paid the principal rent, to make sure that there are no other occupiers and to give vacant possession (though most modern leases now limit this to just giving up occupation).
In your case, the tenant has always paid the rent in full and on the correct days and there are no other occupiers in the property.
You’ve heard rumours of tenants being prevented from operating breaks because they hadn’t given vacant possession. You discussed this with your lawyer who confirmed that that was true and gave you examples of cases where tenants’ breaks had been ineffective. These included where tenants had left their equipment on the premises and even where they had left behind partitioning which interfered with future use. But when you inspect the premises you can see that there’s no hope of running an argument along those lines as the premises have been severely stripped out.
So is this the end of the line?
Not necessarily. If the tenants have stripped out too much kit, including fixtures and fittings that weren’t theirs, then, if the removal means that there is substantial impediment to the landlord’s use of the premises, vacant possession will not have been given and the break won’t be effective.
This all stems from a recent case, Capitol Park Leeds plc v Global Radio Services. In that case, the “premises” were defined in the lease to include the original building on the property, the landlord's fixtures and all additions and improvements. The tenant had stripped out various key features of the property, including ceiling tiles, lighting, heating and various pipes, cables and ducts. The court held that the definition of “premises” prevented the tenant from handing back an empty shell of the building which was dysfunctional and could not be occupied. Accordingly, vacant possession had not been given because the state of the property meant that the landlords’ use of the property was substantially impeded.
The moral… and Goldilocks
Just because tenants have served a break notice doesn’t mean it’s all over. It’s easy to slip up both in serving the notice correctly and in complying with conditions.
When dealing with questions of removing works and fixtures to comply with vacant possession conditions to breaks, tenants need to be mindful to strip out not too little, nor too much, but just the right amount; just as Goldilocks would have recommended.