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Vacant possession


Security guards

John Laing Construction Ltd v Amber Pass Ltd
[2004] 17 EG 128 (Deputy High Court Judge).

T operated a break clause in the lease and went out of occupation. However, T retained security guards and protective barriers at the premises for security purposes. L argued that T had failed to yield up the premises and so argued that the break clause had not been effectively terminated. The argument was rejected. Looking at the matter objectively T had done all that was necessary to make it clear that it was terminating the tenancy. Relvok Properties Ltd v Dixon (1972) 224 EG 1401 applied.


Vacant possession

Definition

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

Summary

Where a break clause is conditional, failure to comply with all of the conditions by the break date may well mean that the lease has not been broken. This case examines the meaning of ‘vacant possession’: at the moment that vacant possession is required to be given, the property must be empty of people and chattels and the landlord must be able to enjoy exclusive occupation and control.

Facts

This case concerned a tenant’s break notice which expired on 3 April 2009. The break clause was conditional upon payment of rent; and delivery up of vacant possession by the break date.

After service of the break notice, discussions took place between the tenant and the landlord as to the carrying out of works pursuant to a terminal schedule of dilapidations served by L two days before the break date. It was not a condition of the break that the works be carried out in order for the lease to come to an end on the break date.

Realising that it would not be able to complete all the works before 3 April, T suggested that it be allowed a further week beyond the break date to complete the works. It offered to hand the keys back (so that L could have access) and to continue to pay for security guards until the works were complete. L did not respond conclusively to these suggestions, and Ts contractors entered the property after the break date in order to carry out the necessary repairs, which took four days to complete.

Issue

Had T complied with the conditions for operating the break clause i.e. delivering up vacant possession?

Decision

The court reviewed earlier decisions on ‘vacant possession’ and held that in order for vacant possession to be delivered up:
  • No-one must be in the property;
  • The landlord must be able to take immediate and exclusive occupation and control of the property;
  • The property must also be largely empty of chattels (i.e. any items left must not substantially interfere with the landlord's possession of a substantial part of the property)
The court concluded that because T had continued to use the premises for its own purposes (to complete repairs and so avoid a damages claim that might exceed the cost of the works) beyond the break date, it had failed to hand back vacant possession. Although T’s approach had seemed logical and sensible, it required the landlord’s consent which had not been forthcoming; the safest course would have been for T to move everyone out of the property (including the security guard) and deliver the keys to the agents.

The court also held that discussions as to the handing back of the keys did not lead to a waiver of the need to deliver up vacant possession; had the keys in fact been accepted by L there might have been a surrender, but that had not happened here.

Citation

Rimer LJ at para 44:
    "If NYK was to satisfy the vacant possession condition in the break option, it had to give such possession to Ibrend by midnight on 3 April and by not a minute later. What, to that end, did it need to do? The concept of 'vacant possession' in the present context is not, I consider, complicated. It means what it does in every domestic and commercial sale in which there is an obligation to give 'vacant possession' on completion. 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."

Vacant possession and chattels

Right to break defeated

Riverside Park Ltd v NHS Property Services Ltd
[2016] EWHC 1313 (Ch)

Summary

A tenant’s failure to remove demountable partitions, that were held to be chattels, defeated the tenant’s exercise of a break right conditional on giving up vacant possession.

Facts

A landlord (L) granted a 10-year lease of premises to T as tenant. The lease contained an option for the tenant to break the lease on a date on giving L not less than 6 months’ prior written notice. It further provided that: “any notice served by the Tenant shall only be effective to determine this Lease if the Tenant gives vacant possession of the Premises to the Landlord on or before the Break Date”.

T duly served such notice in accordance with the lease. Shortly thereafter the lease was assigned to T2 who failed to remove items including demountable partitioning, kitchen units, floor coverings and window blinds from the premises by the break date. L argued that this meant that T2 had not given vacant possession and so had not complied with the conditions for exercising the break.T2 argued that the relevant items constituted tenant's fixtures and fittings, and therefore it was not obliged to remove them in order to give vacant possession. L sought a declaration to this effect.

Issues
  • Whether the items left by T2 were chattels (in which case they did not form part of the Premises) or fixtures and fittings;
  • If chattels, whether this means that vacant possession had not been given; and
  • If fixtures, whether this means that vacant possession had not been given.
Decision

The Court found for L. The Court concentrated on the demountable partitions on the basis that if these were chattels that substantially interfered with L’s possession then it did not matter about the other items. In relation to these the Court held that they were chattels.

Reviewing cases back to 1846, the court looked first at the degree of annexation. The joint expert had stated that the partitions (with one exception) were easily removable, the fixings being to the raised floor and the suspended ceiling). That being the case, the court then concentrated on “what is likely to be more decisive is the object and purpose of annexation” concluding that, given its unique configuration the partitioning was “to benefit the tenant rather than affording a lasting improvement to the Premises” and concluding that the partitioning was a tenant’s chattel.

The failure to remove the partitioning meant that T had not given vacant possession.
The existence of the partitioning was, to quote Lord Greene in Cumberland Consolidated Holdings v Ireland (1946) KB 264, "an impediment which substantially prevents or interferes with the right of possession". It fell foul of the test in NYK Logistics Ltd v Ibrend Estates [2011] EWCA Civ 683 which defined vacant possession as being:
    " ... empty of chattels, although the obligation is this respect is likely only to be breached if any chattels left on the property substantially prevent or interfere with the enjoyment of the right of possession of a substantial part of the property". (See above)
As a result, vacant possession had not been given and the break right had not been effectively exercised.

Comment

The result of this case is a timely reminder that, in general, care should be taken in drafting and exercising conditional break rights to ensure that the tenant has a break right capable of being exercised. In fact, why do tenants ever agree to conditional break clauses? They are fraught with difficulty.


Construction of lease

Arnold v Britton

Goldman Sachs International v (1) Procession House Trustee (2) Procession House Trustee 2 Limited
[2018] EWHC 1523 (Ch)

Summary

The court interpreted the requirement that vacant possession be given up as a condition of breaking the lease in the tenant’s favour.

Facts

Goldman Sachs was the tenant under a 25-year lease entered into in 2000 of premises in the City of London. The passing rent was £4m.

The lease contained a tenant’s right to break as follows, and provided for the rent to be up-to-date as a condition of serving the break notice:
    “23.1 subject to the Tenant being able to yield up the Premises with vacant possession as provided in clause 23.2, this Lease shall be terminable by the Tenant at the expiry of the twentieth year of the Term by the Tenant giving to the Landlord not less than 12 months' and one day's previous notice in writing.

    23.2 On the expiration of such notice, the Term shall cease and determine (and the Tenant shall yield up the Premises in accordance with clause 11 and with full vacant possession) but such determination shall be without prejudice to the respective rights of either party against the other in respect of any antecedent claim or breach of covenant.

    23.3 The Tenant shall not be entitled to give such notice while it shall be in arrears in payment of the Rent."
Clause 11 of the lease contained the tenant's reinstatement obligations. It required the tenant at the end of the term, unless not required by the landlord, to "remove any alterations or additions made to the Premises (and make good any damage caused by that removal to the reasonable satisfaction of the Landlord)" and "to reinstate the Premises to their original layout and to no less a condition that described in the Works Specification" (which was attached to the lease). This obligation was subject to two qualifications, relating to specific upgrades that would not require reinstatement and the tenant's ability to substitute materials in certain circumstances.

Goldman Sachs wished to operate the break clause and sought declaratory relief as to vacant possession.

Issues

Did clause 23.1 and 23.2 require vacant possession to be given up in accordance with clause 11 or was simple vacant possession all that was required (with the reference to clause 11 simply being, in effect, a reminder of the tenant’s end of lease obligations but not forming a condition of operating the break).

Decision

The court agreed with Goldman Sachs, that vacant possession did not have to be given up in accordance with clause 11.

In interpreting clause 23.2, the court referred to the principles of construction as set out in Arnold v Britton [2015] UKSC 36 requiring the court to “identify the intention of the parties by reference to ‘what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean’ by focussing on the meaning of the relevant words… in their documentary, factual and commercial context”.

The court also referred to the later decision of Wood v Capita Insurance Services Ltd [2017] UKSC 24, where Lord Hodge reiterated that:
    "The court's task is to ascertain the objective meaning of the language which the parties have chosen to express their agreement. It has long been accepted that this is not a literalist exercise focused solely on a parsing of the wording of the particular clause but that the court must consider the contract as a whole and, depending on the nature, formality and quality of drafting of the contract, give more or less weight to elements of the wider context in reaching its view as to that objective meaning." (para 10)

    and that

    "Textualism and contextualism are not conflicting paradigms in a battle for exclusive occupation of the field of contractual interpretation. Rather, the lawyer and the judge, when interpreting any contract, can use them as tools to ascertain the objective meaning of the language which the parties have chosen to express their agreement." (para 13)
The court said that, by referring to clause 11 in clause 23.2, the parties could not have intended to introduce another layer of conditionality to the break right. In taking that view, the court was influenced by the fact that having to comply with clause 11 would make it difficult for the parties to know whether the break right had been exercised validly. For example, it required the reinstatement work to be completed to the “reasonable satisfaction” of the landlord.

The court also accepted the tenant’s view that placing the reference to compliance with clause 11 within brackets reduced it to the status of a reminder to comply. It should not be treated as a new, conditional obligation on the break right. The tenant still had an obligation to comply with clause 11 at the end of the lease term, but the key point was that a failure to comply with the requirements of clause 11 would not result in the loss of the tenant’s highly valuable break right.

Whilst stressing that the contra-proferentum rule played only a minor part in interpretation, the court did add that: “if the landlord had wished to make strict compliance with clause 11 a precondition of the exercise of the break clause, the landlord really should have said so expressly rather than leaving it to be teased out of the cross-reference in ambiguous terms in clause 23.1”

The court gave a declaration for the tenant’s construction: in other words, the only conditions on the break right would be for:
  • The rent to be paid up to date (indeed that is a condition for serving the break notice), and
  • Vacant possession of the premises to be returned to the landlord (within the general meaning of that phrase).
Comment

The landlord has been granted permission to appeal, so this may not be the end of the matter.


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