Vacant possession: it’s not pretty if you get it wrong!

The Court of Appeal has in the case of NKY Logistics (UK) Limited v Ibrend Estates BV (2011) provided a reminder to Landlords and Tenants that they must take the utmost care when looking to rely on a break clause to bring a lease an early conclusion.

The lease contained a conditional break clause which allowed the tenant to bring the lease to an early conclusion provided that as at the break date, all rent due at that date had been paid and the tenant had provided the Landlord with "vacant possession".

NYK, the tenant, served a notice to break the lease on 3 April 2009 and then spent time trying to avoid a dilapidation claim by undertaking works to the property to comply with the repair covenants within the lease. It became clear that NYK would be unable to complete the works prior to the break date and NYK proposed that they be allowed more time to complete the works, offering to meet the cost of employing security guards to guard the premises during the time the works were being completed. The Landlord did not respond to that proposal prior to the break date.

NYK did not return the keys to the Landlord on the break date, instead retaining the keys, employing security guards and continuing with remedial works. A few days after the break date, the works were completed and NYK attempted to rely upon the break notice to terminate the lease. The Landlord asserted that the terms of the break clause had not been met and that as a result, the lease continued.

The Court of Appeal decided that that NYK failed to provide vacant possession, explaining that where a tenant is required to provide vacant possession:

1. the property must be empty of people
2. the property must be substantially empty of chattels (personal, moveable items e.g furniture)
3. the Landlord must be able to enjoy immediate and exclusive possession

The only condition attached to the break clause in this instance was the payment of all rent and the provision of vacant possession. As all rent had been paid by NYK, the safest course of action would have been for NYK to vacate the property and return the keys to the Landlord - thereby complying with the requirements of the break clause - before seeking to negotiate a licence with the Landlord to re-enter for the purpose of completing the remedial works.

If you have any queries relating to issues covered by this article or any property related dispute, please contact Ralph Gilbert, partner and Head of the Property Dispute Resolution Group on 01482 323239 or email moc.s1714285181tillo1714285181r@tre1714285181blig.1714285181hplar1714285181

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.