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Riverside Park Ltd v NHS Property Services Ltd [2016] EWHC 1313 (Ch)

3 October 2016

Facts

The tenant purported to exercise a break clause in its lease which was conditional on giving vacant possession of the property demised (the Premises) to the landlord on or before the break date.

At the time the lease was granted, a licence for alterations was entered into authorising the tenant to install on the Premises a large amount of partitioning, kitchen units, floor coverings, window blinds, an intruder alarm and water stand pipes (the Works). Unfortunately, the tenant failed to remove the Works by the break date. 

The landlord argued that the break notice was ineffective as the presence of the Works meant that the tenant had failed to yield up the Premises with vacant possession. The tenant on the other hand contended that the Works were tenant’s fixtures and now formed part of the Premises (so their presence could not be seen as an impediment to giving vacant possession of the Premises).

Issues

  1. Were the Works chattels or fixtures?
  2. If the Works were chattels, did their presence at the break date mean that the tenant had not given vacant possession?
  3. Would the outcome be any different if the Works were fixtures? 

Decision

  1. The test to distinguish between chattels and fixtures focuses on the degree of annexation and (more importantly) the object and purpose of annexation (viewed objectively). In this case, although the judge ruled that all the Works were chattels, his focus was on the partitions (as their presence alone meant that vacant possession had not been given). They were standard demountable partitions which could easily be removed without causing damage. In addition, the configuration of the partitioning was unique. It resulted in a series of small offices which, according to expert evidence, was not what prospective tenants generally looked for these days. The judge therefore concluded that the object of that configuration was to benefit the tenant, rather than to afford a lasting improvement to the Premises.
  2. The presence of the partitions meant that the tenant had not given vacant possession. An obligation to give vacant possession means that a property must be free of chattels if those chattels substantially prevent or interfere with the enjoyment of the right to possession of a substantial part of the property. A landlord’s ‘enjoyment’ for these purposes includes having the property in a condition in which it is an attractive proposition to prospective tenants (and, as mentioned, the configuration of the partitioning was not what prospective tenants currently looked for).
  3. Even if the Works were fixtures, the tenant had still not complied with the condition of the break clause. The Works would be tenant’s fixtures, which means that a tenant can remove them at the end of the term if it chooses to do so. However, the definition of the Premises in the lease specifically excluded items that were tenant’s fixtures, so the tenant could not be said in any event to have yielded up the Premises with vacant possession (given that the Works would still not be part of the Premises).

Points to note/consider

  1. This case shows the dangers for tenants of agreeing a break clause that is conditional on vacant possession being given (because it may extend to removing all chattels on the property). The Code for Leasing Business Premises in England and Wales 2007 talks about giving up occupation and leaving behind no continuing subleases, but tellingly then goes on to say that disputes about whether what has been left behind should be removed should be settled later (as would be the case at the expiry of the contractual term).
  2. A recent County Court decision (Secretary of State for Communities and Local Government v South Essex College of Further and Higher Education) also reached a similar conclusion. The judge decided that the tenant had not given vacant possession of the premises on the break date (as required by the break clause in question) as there had been no objective manifestation of an intention to terminate the lease. In particular, there had been no correspondence saying that the tenant was giving up possession, no handover meeting and no delivery of keys or door or alarm codes (the landlord did not have any keys itself and did not know the codes). In addition, the tenant had left its photocopier and a box of student files behind and was therefore continuing to make use of the premises after expiry of the break notice for the storage of its goods. Finally, the premises had not been left in a state in which the landlord could occupy them without difficulty or objection as it would have to remove some partitions, reception desks, trunking, cabling and sockets, as well as the photocopier and other chattels.

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

David Harris

David Harris

Professional Development Lawyer

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