Partition walls held to be a barrier to effective exercise of a break clause
A High Court judgment handed down at the Leeds District Registry earlier this month has highlighted once again the importance of giving careful consideration to break clauses both the lease drafting stage and also when looking to exercise a break clause to bring the contractual term of a commercial lease an early conclusion.
The facts of Riverside Park Limited v NHS Property Services (2016) were as follows:
- Riverside Park Limited ("Riverside") granted a 10 year lease to Wirral Primary Care Trust ("WPCT") of open plan offices in Bromborough, Wirral on 24 September 2008.
- WPCT carried out works to the premises which included creating office spaces using partition walling, the partitions being attached to a raised floor and suspended ceiling with simple screw fixings.
- The lease contained a break clause entitling the tenant to terminate the lease on 24 September 2013 ("the Break Date"), provided that a notice of the intention to exercise the break was served at least 6 months before the Break Date. Any notice exercising the break would also only be effective to determine this lease if the tenant gave the landlord vacant possession on or before the Break Date.
- On 18 March 2013, WPCT served a break notice on Riverside giving notice that it intended to break the lease on the Break Date.
- On or around 1 April 2013, the lease was vested in NHS Property Services, ("NHS"), NHS from that point onwards taking on all tenant obligations under the lease.
- NHS subsequently vacated the property, leaving behind, amongst other items, the partition walling.
- Whilst the validity of the break notice served by NHS was not disputed, Riverside asserted that by leaving the partition walling and other items behind, NHS had not provided vacant possession and as such the break was ineffective.
- Riverside sought a declaration that the lease had not come to an end.
In the leading case of NYK Logistics Limited v Ibrend Estates (2011) (see my previous article " Vacant possession: its not pretty if you get it wrong" for a more a more detailed note on the case), the Court of Appeal explained that vacant possession means that a property is empty of all people and chattels (moveable items are that not affixed to and form part of a building such as desks, machinery etc) with the landlord able to take "immediate and exclusive possession occupation and control".
The Court of Appeal made clear that where chattels remain within a property, the presence of those chattels will only amount to a breach of a vacant possession condition if any chattels left in the property "substantially prevents or interferes with the enjoyment of the right of possession of a substantial part of the property".
That being the case, the issue for His Honour Judge Saffman to decide in Riverside Park Limited v NHS Property Services was whether the partition wallings were fixtures or chattels and, if chattels, whether their presence meant that NHS had not provided vacant possession.
Whilst the partition walling was fixed to the floor and ceiling, they could be removed without damaging the premises or the partition walling. HHJ Saffman concluded that they had been installed to benefit the tenant during the term of the lease rather than being a lasting improvement to the premises and that as such, the partition wallings were chattels.
HHJ Saffman also concluded that the partition walling substantially prevented or interfered with Riverside's enjoyment of the right of possession of the premises. As a result, it was held that the vacant possession condition of the break clause had not been satisfied. The break clause was, therefore, ineffective and the lease continued.
A word of warning: simply because the partition walling erected by NHS was determined to be a chattel in this case, does not mean that partition walling will not be regarded as a fixture in another case. Every break clause needs to be considered in the context of the lease within which it is contained and the property to which it relates. The sooner that advice is taken upon a break clause the better.
If you have any queries arising from this article, would like to suggest a topic for a future article or wish to discuss a contentious property issue, contact Chris Drinkall, Head of Rollits' Property Dispute Resolution Team on 01482 337367 or firstname.lastname@example.org
This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.