Break clauses: vacant possession taken too far?
Real Estate partner Richard Higgs analyses the recent High Court decision in Capitol Park Leeds plc v Global Radio Services Ltd (2020), on whether a break clause condition requiring ‘vacant possession of the Premises’ had been complied with.
The key issue in the case of Capitol v Global, as in so many cases concerning break clauses, turned on whether a break clause condition had been complied with or not and so whether the lease was therefore at an end or still continuing – in this case for a further 8 years.
The tenant, Global, had purported to exercise its break clause by serving notice. The break was stated to be conditional upon the tenant giving ‘vacant possession of the Premises to the landlord on the break date’. The ‘Premises’ included the original building on the property and in addition “all fixtures and fittings at the Premises whenever fixed” (except the tenant’s or trade fittings) and all additions and improvements made to the Premises.
Global had stripped out not just their own fittings, but also ceiling tiles, ceiling grids, windowsills, lighting, floor finishes and pipework and so effectively left an empty shell. As is often the case, a high cost became apparent for replacing a broken heating system and boilers, and then for further a/c works, which gave pause to the repairs programme. They did not reinstate and make good but tried to negotiate a cash settlement with the landlord , which they failed to achieve.
Capitol contested the validity of the exercise of the break inasmuch as the removal of those items meant that Global had not given them vacant possession of the Premises.
The Court’s analysis
The Court considered the meaning of the term ‘vacant possession’. All the authorities cited before the judge on the meaning of the term vacant possession were about extra things being left behind and not, as was the case here, too many things being taken away. The landlord had produced evidence to the Court of ‘undesirable outcomes’ occurring – business interruption, damage and breaches of statute – as a result of the excessive stripping out of the Premises.
The judge decided that the landlord had been guarding against these undesirable outcomes when it framed the definition of Premises (as outlined above). By including the words relating to the fixtures and fittings and all additions and improvements, the landlord had been seeking to ensure that a tenant exercising the break clause could not do so by handing back a dysfunctional and un-occupiable empty shell.
The judge held that the tenant had handed back considerably less than ‘the Premises’ as it was obliged to do and that the ‘vacant possession of the Premises’ condition had not therefore been satisfied. The state of the property was “an impediment which substantially prevents or interferes with the enjoyment of the right of possession of a substantial part of the property”, as previous case authority referred. The lease had not been broken and was therefore continuing.
The judge did state that this was an exceptional case. Permission to appeal to the Court of Appeal has been granted.
Commentary
On the face it, it does seem counter-intuitive that leaving not enough fixtures and fittings at the premises could be considered to constitute not giving vacant possession. The premises were clearly empty, but they had cleared too much rather than too little, so were they the “Premises” as defined in the lease?
There are usually remedies in leases and general law to compensate for dilapidations, without striking down break clause exercise and the trend of modern drafting is in that direction, but it goes without saying that almost all break clauses refer to handing back “the Premises”, so it could be a fertile ground for dispute.
What if the building had burned down before the break date? It would then usually be the landlord’s duty to reinstate. Hopefully we won’t see a spate of unexplained fires occurring on contested hand-back sites.
It remains to be seen what happens on appeal. The tenant, Global, is a subsidiary of GCap Media Plc, which owns Classic FM, the XFM stations and the One Network of radio stations – it therefore seems quite likely that that they will have the backing to continue to fund this litigation. Watch this space for any update following the appeal.
