The practical effect of Capitol Park Leeds Plc v. Global Radio Services Limited on yielding up a premises with vacant possession

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What is meant by giving vacant possession of a premises? This is a condition common in many break options. Last month's High Court decision in Capitol Park Leeds Plc v. Global Radio Services Limited [2020] EWHC 2750 (Ch) provides insight into what is required by vacant possession and highlights that failure to deliver vacant possession will prevent the break being effective.

This makes sense where the tenant does not bother fully to remove itself and its chattels. However, what is particularly interesting in this case is that the tenant, no doubt keen to ensure that the property was yielded up vacant, removed items from the property that it should not have done. This prevented the property from being handed back with vacant possession and meant the lease continued. Exercising breaks has already generated numerous disputes and this case will not assist in defusing the minefield.

Vacant possession

The obligation to give vacant possession requires the tenant to make the property available in a state in which the landlord can both physically and legally occupy it. Building on this, Topfell Ltd  v. Galley Properties Ltd [1979] 1 WLR 446tells us that the property must be more than simply empty and unoccupied. Instead, the property must be capable of occupation and the landlord must be given undisturbed enjoyment.

Key cases in the past have arisen following a failure of the tenant to remove all of its chattels from the property before yielding up. In such cases, the court has been consistent in finding that such neglect will lead to the property not being handed back with vacant possession. Capitol looked at the other side of the coin and considered whether taking too much from the property could negate vacant possession.

High Court decision

In Capitol, the High Court determined that handing back an empty shell of a building will, in some instances, fail to comply with an obligation to give vacant possession of the premises. This decision rested heavily on the definition of Premises in the lease, specifically:

"…including all fixtures and fittings at the Premises whenever fixed, except those which are generally regarded as tenant's or trade fixtures and fittings and all improvements made…by or on behalf of the Tenant"

Following service of the break notice, Capitol proceeded to strip the property to its base build. This included the removal of 17 original fittings that pre-existed their occupation, such as radiators, window sills, ceiling tiles and other fittings that could reasonably be assumed to belong to the landlord. Whilst there was an element of ambiguity as to whether these formed part of the base build of the property, the intention was to replace these before handing back the property. However, following a meeting of the parties, work stopped with a view to reaching a settlement agreement in lieu of the outstanding works. After these negotiations broke down, Capitol returned the Premises minus the 17 original fittings which were part of the property and not the tenant's to remove.

In his judgment, Judge Benjamin Nolan QC expressed  "these were generically the sort of outcomes against which the Claimant was guarding when it drafted or adopted the definition of 'the Premises'. Moreover, it made commercial common sense so to guard". The cautious nature of the drafting and a strict interpretation of the language used in the lease led to the view that Capitol did not give back vacant possession of the Premises. As such, Capitol did not satisfy the break conditions and the Claimant was entitled to a declaration that the lease will continue until 2025. The consequence of this was that the tenant's over-zealous removal of items from the property meant that the lease and the tenant's liabilities continue until the next opportunity to terminate.

Practical implications

Any ineffective break will mean that the tenant will be bound to the lease and will be liable for rent, outgoings and compliance with the lease covenants until it can effectively break the lease or the lease term comes to an end. This can be very expensive, especially if the tenant was downsizing to save cash or was moving to new premises and therefore would be liable for an additional rent on the unwanted tenancy. The importance of effectively breaking the lease and complying with the lease covenants therefore cannot be overstated.

This case does have an element of a "fact-specific" nature about it and perhaps can to an extent be contained to its own facts. However, there may well be ambiguous lease provisions that come to be considered by lawyers and surveyors many years after the original lease was entered into. Traditionally, the rule of "if in doubt, take it out" might apply. This case is a painful lesson that this approach may not satisfy a break condition to deliver vacant possession.

The case emphasises the importance, from a tenant perspective, to minimise break conditions. It is best to avoid a vacant possession condition and instead have no condition or simply a giving up of occupation condition. Such provisions are more common nowadays, but vacant possession provisions are common to continuing older leases. Capitol is yet another example of the court's strict interpretation of a break condition and emphasises the importance of fully understanding the extent of what is required to deliver the property to the landlord with vacant possession.

Permission to appeal the case to the Court of Appeal has been granted, so we will have to wait and see as to whether the principles established by Capitol will survive.

Given the economic climate and changes to working habits, it is quite possible that we will see more break clauses exercised in the coming years as tenants seek to offload unwanted space to consolidate or minimise their leasehold exposure. It would be surprising, therefore, if this case is the last we hear of contested break clauses for some time.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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