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Tenant break clauses and the rules on vacant possession

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In these tough times for commercial tenants, the right to terminate a lease early by exercising a tenant break clause is extremely valuable if the tenant is wishing to downsize in order to cut costs.

However, it is common for break clauses in commercial leases to be tightly drafted by the landlord’s advisers and they are often conditional upon the tenant having paid all sums due under the lease, there being no subsisting breach of the lease terms, and the tenant giving vacant possession at the break date.

In the case of NYK Logistics (UK) Limited v Ibrend Estates BV, decided last week, the Court of Appeal gave a stark reminder of what is meant by vacant possession. In that case, the tenant, NYK, was carrying out repairs to the property running up to the break date and asked the landlord for confirmation that they could remain in the property for a couple of weeks after the break.

The landlord did not respond to this request, and when the tenant came to hand the keys back after the break date had passed the landlord claimed that the tenant had failed to comply with a condition of the break which was that the tenant must give vacant possession on the break date itself. NYK claimed they were not in occupation on the break date, but were merely carrying out a few outstanding works.

The Court of Appeal decided against NYK, and concluded that at the moment vacant possession is required to be given:

  • the property must be empty of people
  • the landlord must be able to assume and enjoy immediate and exclusive possession, occupation and control
  • the property must be empty of chattels (furniture, moveable plant and machinery and other moveable property and items)

Given NYK had not handed the keys back on the break date itself, they had retained their security guards to control access to the building, and had continued to carry out works to the property past the break date, vacant possession had not been given.  The result is that NYK are now liable for all the rent, business rates and other covenants of the lease up to the end of the contractual lease term.

This serves as a reminder that exercising a break in a lease is often a technical exercise and we would advise all tenants seeking to do so to take legal advice, or they may find themselves in the same position as NYK.

For advice on this, or any other commercial property matter, please contact John Chesworth on 01772 258321.


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