Riverside Park Ltd v NHS Property Services Ltd : Options to Break, Chattels and Vacant Possession
31 October 2016 by Jordan-Ray Bennis
An option to terminate a commercial lease is often important, providing one or both parties with the flexibility to respond to changing business needs or market conditions. Indeed, the circumstances may be such that a tenant is no longer able to pay the agreed rent and wishes to source alternate or cheaper accommodations. In this situation, an option to break is a convenient tool.
Break rights granted in favour of tenants concern landlords, who are keen to derive income for the entirety of the contractual term. It is, therefore, unsurprising that they are usually required to be exercised in accordance with stated conditions. Failure to comply with these conditions, even where onerous, will defeat the break. The uncompromising nature of the position is best illustrated by the comments of Lewison J in Legal & General Assurance Society Ltd v Expeditors International (UK) Ltd  EWHC 1008 (Ch), who remarked that “there is no room for general considerations of fairness or conduct” in this regard.
The recent case of Riverside Park Ltd v NHS Property Services Ltd  EWHC 1313 (Ch) is a stark reminder of the consequences of non-compliance. The tenant, NHS Property Services Ltd, took a lease of an open-plan office space for a period of 10 years, which contained an option to break exercisable on the fifth anniversary of the commencement date. Under the terms, a notice indicating the tenant’s intention to exercise the right would only serve to determine the lease if the property was returned with vacant possession. The tenant installed a large amount of partitioning under a licence for alterations, which was not removed on or prior to the break date. The presence of partitioning after this date was argued to render the notice ineffective on the basis that the tenant had failed to yield up the property with vacant possession.
The court had to consider whether the partitions were chattels or tenant fixtures forming part of the property. If the latter, the partitioning could not be taken to frustrate vacant possession. Contrary to the specification contained in the licence, the partitions were in no way fixed to the building’s structure and, as a result, were held to be chattels for the benefit of the tenant.
On the matter of vacant possession, the court found that the partitioning served to substantially prevent or interfere with the claimant’s right of possession. The judge went on to note that, even if the additions were fixtures, failure to observe and perform the tenant covenants resulted in an obligation to remove the partitions and reinstate the property to its prior configuration.
Although the decision might seem harsh, the case illustrates the need for tenants to comply strictly with their obligations. Options conditional upon vacant possession will require all items that represent an impediment to the landlord’s possession and enjoyment of the property to be removed. While these may not always be easy to identify, tenants should pay close attention to the terms upon which the lease or licence is granted and act accordingly. If you require assistance with a lease, licence or any other commercial property matter, please contact Ellen Petersen on 01206 835218 or click here for more information.