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Vacant possession and lease breaks: Court of Appeal clarification

commercial-building Print publication

19/07/2021

Vacant possession and lease breaks: Court of Appeal clarification

Lease termination and Real Estate Litigation experts Martin McKeague and David Manda provide an essential update on a Court of Appeal case in connection with delivery-up of vacant possession and effective lease breaks.

Why is Capitol Park Leeds v Global Radio Services of interest to landlords and tenants?

In November 2020 we explained the High Court’s decision that a tenant’s failure to reinstate fixtures and fittings meant that a tenant had not delivered up vacant possession of premises (instead, the tenant had given back less than it should have done – a “dysfunctional and unoccupiable building“), and that it had therefore invalidated its attempt to break the lease.

The Court of Appeal [1] has now reversed that decision and has confirmed that giving vacant possession of premises is not concerned with the physical state of premises (the repairing and reinstatement covenants deal with that). Rather, the delivery-up of vacant possession is simply confined to returning the premises free of people, chattels and interests [2].

The clarity and certainty afforded by the Court of Appeal’s decision will be welcome and helpful for tenants seeking to depart from commercial premises, especially where they are exiting pursuant a lease break option.

What practical advice arises?

Businesses often look to divest themselves of surplus property to reduce rental commitment in times of economic decline or uncertainty. Challenges facing the high street and the office sector in particular are now contributing to increasing numbers of businesses exercising break options, with a view to bringing about early termination of leasehold liabilities.

Once the decision has been made to bring a commercial lease to an end, the failure to serve a valid break notice can have drastic consequences. The business may lose the opportunity to break the lease and may therefore remain liable and tied into the property with long-term, unwanted commitments. The position is complicated by the fact that many lease break options are fraught with legal and technical traps for the unwary. The Court of Appeal’s decision in the Capitol Park Leeds case has addressed and resolved one such trap, but many significant others remain.

Adopting the ‘When? How? Who? What?’ approach to effecting lease breaks should help any tenant considering an early departure from leasehold premises to minimise risk. Departing tenants should also seek specialist legal and surveying advice as part of their overall exit strategy.

How we can help

Walker Morris’ Martin McKeague and David Manda specialise in Real Estate Litigation and are experts on all aspects of commercial lease disputes and portfolio management. Please do not hesitate to contact Martin or David for any further advice or assistance in relation to the exercise of any commercial lease break (whether from a landlord’s or a tenant’s perspective), and in relation to any associated dilapidations or other lease termination issues.

[1] [2021] EWCA Civ 995

[2] Ibid para 13; Goldman Sachs International v Procession House Trustee Ltd [2018] EWHC 1523 (Ch)

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