An obligation to give vacant possession is not satisfied if personnel remain at the property, even if the tenant has offered to return the keys to the landlord and would leave if asked to do so.

It is a well established rule that conditions attached to a right to terminate a lease, a “break right”, must be strictly complied with. For that reason, a tenant would be well advised not to agree to a condition that it has complied with all its obligations under the lease, because there will inevitably be some breach, probably of the repairing covenant, which would prevent the tenant from exercising the break right. A condition requiring vacant possession to be given is very common but, as a recent Court of Appeal decision shows, it too can trip the tenant up.

The recent case concerned a lease of a warehouse in Rotherham. The tenant had originally taken an assignment of a ten year lease and when that ended it took a further two year term with a right to break after one year on six months’ notice provided the rent was paid and the tenant had given vacant possession of the premises.  

The tenant gave notice to exercise the break right and a few days before the lease was due to end some minor outstanding repairs were identified. The tenant made what the judge later described as a sensible proposal. It suggested that it would keep its security guard on site for a week after the break date while its workmen finished the repairs, but it would not pay rent or rates during that period and would hand over the keys on the break date so that the landlord would have full access. In effect the suggestion was that the tenant would give possession on the break date and return later to finish the repairs as the landlord’s licensee.  

The judge said that an arrangement along those lines would probably have made the litigation unnecessary. Unfortunately the landlord’s surveyor could not get hold of the landlord before the break date to get a response to the tenant’s proposal but the tenant unwisely went ahead with it in any event. When, a few days later, the landlord finally responded to urgent enquiries about handing back the keys, it discovered that the workmen were still on site. Instead of collecting the keys the landlord obtained legal advice and claimed that vacant possession had not been given so that the break right had not been properly exercised and the tenant remained liable to pay the rent.

The case went as far as the Court of Appeal, where a new definition of vacant possession was formulated (see box). Applying that definition, it was clear that the tenant had not given vacant possession.

Definition of Vacant Possession

“It means that at the moment that ‘vacant possession’ is required to be given, the property is empty of people and that the purchaser is able to assume and enjoy immediate and exclusive possession, occupation and control of it. It must also be empty of chattels, although the obligation in this respect is likely only to be breached if any chattels left in the property substantially prevent or interfere with the enjoyment of the right of possession of a substantial part of the property.”  

In this situation, the only safe course for the tenant is to move everyone out of the property by the break date and return the keys. Simply offering to return the keys and being willing to leave if asked by the landlord is not sufficient. If necessary, the tenant can seek to agree with the landlord that it will be allowed access after the break date to finish repairs, but it must be clearly agreed that the tenant’s presence at the property will be as the landlord’s licensee and not as tenant. Luckily for the tenant in this case it had another break right just eight months later which it exercised correctly.  

Source: NYK Logistics (UK) Ltd v Ibrend Estates BV [2011] EWCA Civ 683.