A break clause can be included in a fixed term lease allowing either the landlord or the tenant to terminate the lease early. The right to break may arise on one or more specified dates or it may be exercisable at any time during the term on a rolling basis.
In the case of Capital Park Leeds Plc v Global Radio Services Limited  EWHC 2750 (Ch) the High Court has considered whether a tenant gave vacant possession in accordance with a break clause under a lease.
The Lease of the Property was for a term of 24 years expiring on 11th November 2025. The Lease contained a break clause that the Tenant may terminate the Lease on the 12th November 2017 (“Tenant’s Break Date”), if the Tenant ‘gives vacant possession of the Premises to the Landlord on the relevant Tenant’s Break Date’.
The “Premises” were defined in the Lease as including “….. all fixtures and fittings at the Premises whenever fixed, except those which are generally regarded as tenant’s or trade fixtures and fittings, and all additions and improvements made to the Premises and any outside parts …...”
The Tenant gave notice to terminate. The Landlord’s solicitors served a Schedule of Dilapidations on the Tenant as notice to reinstate the Property in accordance with the lease. The Tenant proceeded with the strip-out works of 17 original fittings including ceiling titles, window sills, lighting, radiators and heating pipework to serve radiators.
Discussions continued between the parties in an attempt to assess the condition of the Property and to establish whether a financial settlement could be achieved in lieu of the remaining works. As discussions advanced, the Tenant stopped the remaining works pending an agreement being reached. The parties did not reach an agreement and the Tenant moved out without replacing these features.
The question for the Court was whether the Tenant, having carried out the strip-out works before returning the Property to the Landlord had given “vacant possession of the Premises” for the purpose of the condition contained in the Lease. The Landlord argued that the Lease had not been validly determined and should continue until the end of the Term.
The Court considered rules of contractual interpretation as the Landlord argued that the Tenant did not give back “the Premises” and the Tenant argued that they had given “vacant possession”. The case required the Court to revisit the meaning of “vacant possession” as there was already a wealth of case law. “Vacant possession” generally requires a property to be empty of people and chattels so that the Landlord is able to enjoy immediate and exclusive possession and must not contain a substantial impediment to the Landlord’s use of the property, or a major part of it.
The Court considered the case of Cumberland Consolidated Holdings Ltd v Ireland  1K.B.264 which is the leading case on the topic of vacant possession. That case, which relates to the sale of a property with vacant possession, identifies two possible tests for deciding whether or not vacant possession has been given:
- The first test looks at the activities of the person who is required to give vacant possession. A seller who leaves property of his own on the premises on completion cannot be said to give vacant possession, since by doing so he is claiming a right to use the premises for his own purposes, as a place of deposit for his own goods inconsistent with the right the purchaser has on completion to undisturbed enjoyment.
- The second test looks at the physical condition of the property from the perspective of the person to whom vacant possession must be given. If that physical condition is such that there is a substantial impediment to his use of the property or a substantial part of it then vacant possession will not have been given. It is likely to be satisfied only in exceptional circumstances.
The Court acknowledged that the cases considered were concerned with additions and/or improvements to premises or things left behind and not, as in the Capital Park case, with things taken away.
The Court held that the requirement in Capital Park for vacant possession had not been reached. The Court agreed with the Landlord that the Tenant gave back considerably less than “the Premises” as defined in the Lease. The Court also held that the definition of “the Premises” prevented the Tenant from handing back ‘an empty shell of a building which was dysfunctional and unoccupiable’.
The Court considered this to be an exceptional case, where vacant possession had not been given because the physical condition of the Property was such that there is a substantial impediment to the Landlord’s use of the Property, or a substantial part of it (applying the second test for vacant possession as identified in Cumberland Consolidated Holdings Ltd v Ireland  1K.B.264).
The Tenant also sought to rely on a meeting between the parties’ agents, arguing that the Landlord was estopped from relying upon the alleged failure to deliver up the Premises with vacant possession. The Tenant alleged that an agreement had been reached at the meeting that the Tenant’s contractors should halt the remedial works pending negotiations. The Court held that there was no agreement and rejected the claim to an estoppel.
The case is an interesting example of the difficulties that can arise where the break clause is conditional upon vacant possession.
The Tenant has been granted permission to appeal the decision to the Court of Appeal.