It is not uncommon to see a pre-condition of a break clause in a lease requiring the tenant to give the property back with vacant possession on or before the break date. From first sight, vacant possession appears quite straight forward but this is not certainly the case!
It has been a long-established rule that in order for a tenant to exercise their ability to exercise a break clause, all of the conditions attached to it must be strictly complied with no matter how trivial the breach may be. For example, if the lease requires the break notice to be served on pink paper but the break notice is served on blue paper then the break will be ineffective.
Over the years, many tenants have been caught out and have been unsuccessful in exercising its right to terminate the lease in accordance with the break clause as vacant possession has not been provided. A landlord will be very pleased to note that its tenant has unsuccessfully exercised its break right as the tenant will continue to be liable under the lease and will continue to be responsible for paying the rent until the end of the term (provided that there is no further opportunity to terminate the lease early) which can prove to be very costly for the tenant!
So, I hear you ask … what is vacant possession? That is a very good question but rather unhelpfully, there is no black and white answer. In short, vacant possession is an extremely onerous condition and would require, amongst others, the following to be complied with:
• The property must be empty of people and the tenant’s chattels/possessions;
• Any licences, underleases or other third-party interests must be terminated; and
• The landlord must be able to enjoy immediate and exclusive possession and control of the property.
The courts have taken a very strict view and the following are just some examples of what may constitute a tenant not providing vacant possession upon the break date:
• Demountable partitioning being left in situ;
• Bags of rubbish left at the property;
• Security staff remaining in place in order to ensure the property is kept secure;
• Freestanding fencing and concrete barriers left at the property to protect the same from vandalism; and
• Workmen remaining at the property to finish off repairs.
If the landlord accepts the keys back from the tenant upon the break date it is not always acceptance by the landlord that the break has been effectively exercised. Further, it may appear that a tenant’s actions (such as hiring security staff) benefit the landlord and its property but these helpful steps can hinder the exercise of a successful break.
Therefore, it is essential that a tenant obtains full legal advice when entering into a lease as clauses which may appear innocent at first sight could have a huge financial impact if they are not strictly followed and understood.
Please contact PRS Commercial Property Department should you require any further advise on 01702 338338/ 01277 500123/ 020 8049 5888.