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So, you want to surrender? Not so fast, mon ami….

A recent case in the High Court Chancery Division (Riverside Park Ltd v NHS Property Services Limited [2016] EWhC 1313 (Ch)) illustrates the difficulty of exercising break clauses in commercial leases and the importance of taking legal advice when looking to surrender premises:

The claimant, Riverside Park Ltd, granted a 10-year lease of Suite 4 Unit 2 Riverside Park, Bromborough, Wirral (the Premises) to Wirral Primary Care Trust (WPCT) by a lease (the Lease) dated 24 September 2008.  The Premises were on the first floor in a building owned by the claimant. At the time that they were let they had an open plan layout.

Clause 6.10 of the Lease was a break clause entitling the Tenant to terminate the Lease on 24 September 2013 provided that notice of intention to exercise the break (Break Notice) was served at least 6 months before that date, time being of the essence. The clause provided that Break Notice would only be effective if the Tenant gave vacant possession of the Premises to the landlord on or before 24 September 2013.

On 18 March 2013 WPTC served Break Notice.

Oddly enough, Break Notice having been served, on or around 1 April 2013 the residue of the term created by the Lease was transferred to NHS Property Services Ltd (the defendant) who became liable to make the payments due under the Lease and comply with other Lease obligations. The defendant also wished to bring the Lease to an end on the break date – 24 September 2013.

Prior to the break date the defendant purported to vacate the Premises – as required by the Lease.  Various items were however left behind.  These included:

  • A large amount of partitioning;
  • Kitchen units;
  • Floor coverings;
  • Window blinds;
  • An intruder alarm; and
  • Water stand pipes within a large meeting room

These items had been brought into the Premises after the Lease had started by WPTC pursuant to a Licence for Alterations made between the claimant and WPTC and dated the same day as the Lease (the Licence).

In the Court proceedings the claimant sought a declaration that the continued presence of the items referred to above amounted to vacant possession not having been given, that the Break Notice was therefore ineffective and the Lease had therefore not come to an end.  The claimant further sought an order that the defendant, as successor to WPCT, comply with its continuing obligations under the Lease including the obligation to pay rent and other sums due under the lease.  At the date of the issue of the claim the amount that the claimant claimed was due from the defendant was £111,766.5

The defendant argued that the items referred to above were properly seen as tenant’s fixtures and fittings which either by operation of law or on a proper construction of the Lease (and Licence) had been integrated into the Premises.  Whilst there was a right to remove tenant’s fixtures and fittings there was no obligation and the presence of the above items did not therefore mean that vacant possession had not been given.  Accordingly, the defendant’s obligations under the Lease ceased from 24 September 2013.

Having regards to the terms of the Lease and of the Licence (in relation to which there had been a breach of condition), HHJ Saffman found that the partitions, not being sufficiently fixed to the structure to render their removal difficult, were not tenant fixtures.  They were, rather, chattels and hence their continued presence amounted to a failure to give vacant possession.  Surrender was therefore ineffective and the obligation to pay Rent (and other sums due under the Lease) continued.

Exercising a break clause in a Lease is a complex process.  The consequences of getting it wrong can be severe.

The Property & Commercial Department at Barrett & Co are happy to help you navigate these difficulties.

Further Reading:

Reynolds Report December 2020 – “What a nuisance!”

It’s still obvious! – The Reynolds Report Feb 2021

Leasehold Properties – Points to Consider

Leasehold Extensions: The Basics

Property Conveyancing: How it works: Additional Leasehold notes

How do I protect my money when buying a house?

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Our Property and Commercial Department is headed by Martin Reynolds an experienced commercial solicitor with a background in commercial dispute resolution and insolvency law. To contact Martin and his team; call 0118 958 9711 or email [email protected].

"barrettandco" and "Barrett & Co" are trading names of Barrett & Co Solicitors LLP, a Limited Liability Partnership incorporated in England and Wales under registration number OC356263, with registered office at Advantage House, 87 Castle Street, Reading, Berkshire, RG1 7SN. Barrett & Co Solicitors LLP is authorised and regulated by the Solicitors Regulation Authority (SRA Number 549694).

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