Real Estate Update

Court of Appeal decision that a break condition in a lease that required vacant possession was satisfied even when the tenant left the property in a dysfunctional condition.

Capitol Park Leeds plc v Global Radio Services Ltd [2021] EWCA Civ 995

In this case the tenant (“T”) in a commercial lease had the right to break providing they gave vacant possession of the “Premises”. The “Premises” was defined in the lease as including the original building, landlord’s fixtures (whenever fixed) and all additions and improvements. After giving notice to terminate, T stripped out key features including, lighting, heating and ceiling tiles. They had intended to replace these before vacating, but for other reasons T did not replace the features before moving out.

Initially the High Court held that vacant possession had not been satisfied, as the definition of the premises prevented T from handing back an empty shell. Additionally they held that vacant possession could not be satisfied, if the state of the property meant that the landlord’s use of the property was substantially impeded.

However the Court of Appeal overturned the High Court’s decision. They stated that vacant possession requires the property to be returned free from people, chattels and legal interest. Vacant possession was not concerned with the property’s actual physical condition. In the circumstances of this particular lease, the break clause was not conditional on the tenant observing/performing any covenants in the lease including repair obligations.

The landlord argued that the as the break clause stated that the “Premises” was to be returned to them, T had failed to comply with the break clause, as the definition of “Premises” extended to the landlord’s fixtures and fittings, and T had removed these fixtures. However the court held that this was incorrect, as this interpretation would have lead to implications that were unintended by the parties especially as the landlord could recover compensation from T separately for breach of repair.  

Here the court emphasised, that any tenant wishing to exercise a break clause, must comply with the conditions attached to the clause, but these conditions should not necessarily be interpreted in favour of the landlord.