Commercial property leases: A warning against removal of landlord’s fixtures

Recent case law (Capitol Park Leeds Plc v Global Radio Services Ltd) has established that removal of landlord’s fixtures where vacant possession is a condition of break will preclude a tenant from successfully exercising its break right.

Tenant break rights in commercial leases have historically been drafted to require vacant possession by the tenant as a condition of break.

There has been much case law over the years as to precisely what constitutes ‘vacant possession’ and it has been held that if a tenant leaves furniture or equipment that substantially interferes with or prevents the enjoyment of the property or a substantial part of it then it will not have delivered vacant possession to its landlord.

That being the case, modern commercial leases often avoid the obligation to provide vacant possession on break (such an obligation being very onerous on a tenant – not to mention the potential for uncertainty) and instead adopt a requirement for a tenant to ‘give up occupation’.

Giving up occupation requires a tenant itself (and any subtenants and other occupiers) to physically vacate the premises, which is considerably less onerous than an obligation to give vacant possession.

For leases that include vacant possession as a condition of break, the case of Capitol Park Leeds Plc v Global Radio Services Ltd provides a stark warning to well-meaning tenants who carry out reinstatement works prior to break as required by the terms of their lease and inadvertently or otherwise remove landlord’s fixtures from the premises.

The tenant in Capitol Park Leeds Plc v Global Radio Services Ltd had done just that and the Court held that the tenant, having removed part of the premises (in this case landlord’s fixtures and part of the base build), was not able to deliver up to the landlord the premises originally demised with vacant possession and as a result, the tenant was unable to validly exercise its right to break.

This will have been a costly mistake for the tenant – not only will it have incurred the cost of carrying out reinstatement works but as a result of being unable to exercise its right to break will be tied into rental and other liabilities under the lease until expiry or, if earlier, the next tenant break date.

In order to minimise the risk of this happening to you:

• ensure that your lease clearly defines the premises (and in particular any landlord’s fixtures)
• take photographs of the premises before you take occupation (and agree to these with the landlord if possible) in order to establish precisely what was at the premises before you took occupation
• when you come to reinstate the premises prior to break/lease end, refer closely to your lease and any related works documentation (for example any licence to alter/agreement for lease) in order to establish what alterations were made by you and therefore what should be reinstated
• if possible, keep an open dialogue with your landlord as to what is required from you in terms of reinstatement
• most importantly, if you are negotiating a break option in a new lease then you should insist it not be conditional on vacant possession – most landlords will now accept this – and if it is too late (because you already have such a conditional break option in an existing lease) then you should take early legal advice before exercising it.

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