If a tenant of commercial property no longer needs its premises, then the lease might allow it to serve a break notice to bring its occupation to an end.
Conditions are often attached to the exercise of a break clause and landlords will often scrutinise compliance with the break conditions very carefully because any failure to comply with a break clause condition could prevent the lease from coming to an end.
In the case of Capitol Park Leeds Plc v Global Radio Services, the Court of Appeal had to decide if the tenant had complied with a break condition which required it to give vacant possession. After serving a break notice, the tenant stripped out the ceiling tiles, lighting and heating system with the intention of replacing these features before vacating the property. The work to repair the premises was put on hold whilst the tenant tried to settle its dilapidations liability and agree a surrender of the lease with the landlord but when it became clear that terms could not be agreed, the tenant did not resume work and the landlord argued that the tenant had failed to give vacant possession.
When the case was first decided in the High Court, the Court decided that the landlord had not been given vacant possession of the premises because it had given back an empty shell which the landlord could not easily let to a new tenant.
The Court of Appeal reviewed previous cases relating to break clause provisions and decided that the requirement to give vacant possession imposed an obligation on the tenant to return the property to the landlord free from its occupation, any belongings that it had stored at the premises and any legal interests e.g. licensees or undertenants, rather than being based upon the condition of the property at the break date.
The Court found that the tenant was under no obligation to comply with its repairing obligations in the lease in order for the break notice to have effect and if the removal of the tiles, lighting and heating system meant that the lease could not be terminated, then the tenant would effectively be prevented from terminating its lease in circumstances where the landlord could recover compensation in respect of the items that had been removed by serving a schedule of dilapidations.
The need to comply with break clause conditions will always be a fertile area for disputes and if you require any advice in this area you are invited to contact Alexander Haddad (ahaddad@nockolds.co.uk / 0203 892 6805) to discuss the issues.