Was Vacant Possession Given Following the Exercising of a Tenant’s Break Clause

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The High Court considered in the case of Riverside Park Ltd v NHS Property Services Ltd [2016] EWHC 1313 (Ch) whether a tenant, which had exercised its break clause, had complied with its obligation to give vacant possession. A break clause may only be exercised if any conditions attached to it have been satisfied and will often contain a condition that the tenant must give vacant possession.

In this particular case, when the lease was granted, the premises were open plan. The tenant carried out various works including the installation of partitions in accordance with a licence for alterations. These were not removed when the break option was exercised. The issue before the High Court was whether these works were chattels or were tenant’s fixtures. The High Court held that they were chattels.

The court took into account the fact that the object and purpose of the annexation was to benefit the tenant rather than to afford a lasting improvement to the premises. These partitions substantially prevented or interfered with the landlord’s right of possession. Even if the High Court found that the items were tenant fixtures, the licence for alterations had ceased to have effect as the tenant had failed to comply with its conditions. The conditions required that the tenant install the partitions in accordance with the landlord’s specification, and notified the insurers, failing which the licence was of no effect. The tenant was required to reinstate the premises if the licence was of no effect, or if the landlord so required at the end of the term.

This case demonstrates the need for a tenant to fully comply with any conditions for existing break rights and to check carefully the terms of any lease or licence for alterations, as if the break conditions are not complied with the lease will continue to exist.

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