06 June 2012 #Commercial Real Estate
Many of you might have noticed the words “the Tenant will deliver up vacant possession of the Premises........” in a break clause in your lease. What does that actually mean?
The recent case of NYK Logistics v Ibrend 2011 highlighted some key points about the Tenant’s responsibility when delivering up Premises pursuant to a Break Clause.
The short facts of the case are this:
The Tenant had a lease of some warehouse premises which included a break clause obliging the Tenant to deliver up the Premises with “vacant possession”. The Tenant gave notice to break the Lease within the stated time and the Landlord commissioned a schedule of dilapidations
Two days before the scheduled break date of 3 April 2009 the parties respective surveyors agreed dilapidations. The Tenant agreed to do the works and the Landlord agreed to come and collect keys. Despite agreeing to do so, the Landlord failed to collect the keys. The Tenant`s contractors then remained at the Premises, past the Break Date finishing off some minor repairs
The Tenant’s contractors didn’t finish the agreed repairs until six days after the Break Date had passed. As a result, the Landlord considered that “vacant possession” had not been given and therefore the Break had not been validly exercised. The Landlord then sought a declaration that they were entitled to have the rent paid (and the tenant did so ) from April to December 2009 and that the Break notice was invalid.
The Tenant took the view that as it only had to carry out minor repairs and it had no intention of excluding the Landlord from access to and occupation of the Premises, they did not agree with the judgement
The case was appealed and the Court found in favour of the Landlord. The Court said that “vacant possession” means that the premises have to be free from all chattels and persons at midnight on the designated date. The Tenant had not given up possession as it had remained "in occupation". Tenant maintained that the Landlord had not asked it to go.
The Court had little sympathy for the Tenant. They said that if the Tenant had returned the keys to the Landlord and instructed security to leave on the 3 April the case would not have been brought.
Therefore when vacant possession is to be given and the Tenant knows that it is imminent, it must make suitable arrangements to vacate. The Property must be:
Sometimes the extent of “chattels” is uncertain. This case re-iterated that they would be only to the extent of items which would substantially interfere with the Landlord taking back possession.
This case therefore highlights the importance firstly for a Tenant to carefully negotiate the terms of a break clause at the grant of the Lease so that there are as few conditions attached to it as possible and secondly that when the time comes to serve the Break Notice that the conditions attached to the Break clause, if any, are carefully considered and adhered to.