The holy trinity of vacant possession: people, chattels and interests

Posted: 02/08/2021

Capitol Park Leeds Plc and Capitol Park Barnsley Limited v Global Radio Services Limited [2021] EWCA Civ 995

On 5 July 2021, the Court of Appeal overturned the first instance decision in Capitol Park Leeds plc v Global Radio Services Ltd [2020] EWHC 2750 (Ch), holding that a tenant who had extensively stripped out premises, including fixtures that formed part of the premises, so as to leave the same in an “unoccupiable” state, had nonetheless given vacant possession, and thereby successfully operated its break option.

Facts and earlier decision

The break option in question was subject to the standard condition requiring the tenant to “give vacant possession of the premises”. The case hinged on whether it could be said that “vacant possession” had been given where a tenant had removed fixtures/fittings specifically included as forming part of the “premises”.

Prior to the break date, the tenant had undertaken an extensive scheme of strip-out works at the subject premises – including removing various fixtures such as ceiling grids and tiles, floor finishes, windowsills, ventilation ductwork, radiators and lighting.

At first instance, the High Court had accepted the landlord’s argument that the tenant had failed to give vacant possession of the "premises" (and thereby failed to operate the break) given that the definition of the “premises” in the lease specifically included "all fixtures and fittings […] whenever fixed".

Decision of the Court of Appeal

The Court of Appeal overturned the earlier decision. Quoting Mr Justice Nugee in Goldman Sachs International v Procession House Trustee Ltd [2018] EWHC 1523 (Ch), Lord Justice Newey held that “vacant possession” involved the "trilogy of people, chattels, and interests", and that an obligation to give “vacant possession” accordingly referred to the need to give back property free and vacant of this trilogy - it was not concerned with the physical condition.

In reaching its decision, the Court gave weight to the fact that break clauses can be drafted as conditional on the tenant performing its covenants, but that this had not been the case in this instance. The Court also considered that the yielding up clause – requiring the tenant to leave the premises “in a state of repair condition and decoration which is consistent with the proper performance of the tenant’s covenants” – was more properly directed to issues concerning condition and repair. It leant support to the tenant’s argument that the drafting of the break clause did not intend to consider such matters.

The tenant had therefore successfully operated its break option. However, the landlord was not left without recourse in relation to losses suffered as a result of the premises having been left in a non-compliant condition since it retained the right to bring a terminal dilapidations claim against the tenant in the usual way.

Comment

What constitutes a fixture and how to deal with it are often two of the trickiest questions when considering break conditions. While the clarity provided by this decision as to the requirements of “vacant possession” will no doubt be welcomed by tenants, the case starkly highlights the contentious nature of break options and the need for tenants to take early advice on break requirements to avoid ending up in lengthy, expensive litigation – not to mention the risk of being left with a hefty dilapidations liability.

This article has been co-written with trainee solicitor Tom Perkins.

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