The Perils of Break Clauses: Part 978

24 November 2020

Author: Chris Phillips

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On the topic of break clauses, the requirement to give “vacant possession” has given rise to much debate and a significant number of judicial decisions. The recently decided case of Capitol Park Leeds plc v Global Radio Services Ltd [2020] EWHC 2750 (Ch) in the High Court again explored this subject, albeit in rather uncommon circumstances.

Global was the tenant of Capitol commercial premises in Tingley on the outskirts of Leeds, having taken an assignment of a lease in 2014.The assignment was part of a corporate transaction by which Global acquired all of the properties owned by The Guardian Media Group. The transaction resulted in Global acquiring more properties than it needed and the Tingley premises were deemed surplus to requirements. The lease contained a break clause allowing Global to terminate in 12 November 2017, and Global duly served notice to exercise the break.

The break clause was subject to a number of conditions, one of which was that Global was required to give “vacant possession of the Premises to the Landlord on the relevant Break Date. ”Conscious of the requirement to comply with the terms of the break clause, Global instructed contractors to commence a thorough strip-out of the premises. However, work was stopped prior to the break date as Global was hopeful of reaching a settlement with the Capitol on dilapidations whereby it would pay Capitol a certain sum in lieu of having to complete the works. This settlement had not materialised before the break date and Capitol argued that the break clause has not been complied with and the lease therefore continued.

Capitol’s argument centred around the view that vacant possession of the Premises had not been given in accordance with the requirements of the break clause. The “Premises” was a defined term in the lease and included “all fixtures and fittings at the Premises whenever fixed, except those which are generally regarded as tenant’s or trade fixtures…” At the break date, the strip-out works undertaken by Global had resulted in the removal of, amongst other things, ceiling tiles, window sills, office lighting and a smoke detection system. In contrast to the usual scenario where a tenant has not carried out sufficient strip-out works, the present case, argued Capitol, was that the tenant had removed too much, rendering the premises unlettable.

Global’s case was that the concept of vacant possession required them to deliver up possession of the premises free any occupation by any people, free of any of Global’s belongings and free of any legal interests. Any claim which the Capitol would have relating to the state of the premises would be for damages in the normal manner; it should not lead to the invalidation of the break clause.

The Court found for Capitol. The judge referred to the definition of the Premises and its inclusion of the reference to “fixtures and fittings” and stated that Global could not hand back “an empty shell of a building which was dysfunctional and unoccupiable.” Vacant possession was not given as the physical condition of the premises was such that there was a “substantial impediment to the Landlord’s use” of the premises. The break clause was therefore not properly actioned.

As noted above, the case is an unusual example of the difficulties that can arise around the concept of vacant possession. In the majority of cases, tenants are concerned with invalidating a break clause by not removing enough from commercial premises. This case is a reminder that a tenant can go too far the other way.

The case also raises another important issue. Global stopped its contractors from continuing works as it thought that it had, or would, reach an agreement with Capitol for the payment of a settlement sum in lieu of completing the works. Capitol argued no such agreement was ever reached and that Global stopped works at its own risk. Surveyors for the parties differed in their opinion as to what was agreed (or not agreed).In finding in favour of Capitol, the judge placed weight on the fact that there was no contemporaneous documentary evidence between the parties to evidence any alleged agreement. It is therefore important in these circumstances to establish when an agreement has been reached, and to have some sort of record of that agreement; the more precise, the better.

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