The High Court has recently decided in the case of Riverside Park Ltd v NHS Property Services Ltd [2016] that internal partitioning in a property is considered to be a chattel.
In the case the landlord was opposing the tenant’s break notice by claiming that the tenant had not fully complied with the break clause conditions in the lease, namely, giving vacant possession of the premises.
During the term of the lease the tenant had carried out work at the property which included inserting a partition wall. The break clause stated that vacant possession of the premises must be given on the break date for a break notice to be effective. This is a common condition of a break clause.
The High Court considered whether the tenant had complied with its obligation to give vacant possession and it decided that in leaving the partitioning it had not given vacant possession. This meant that the tenant’s exercise of the break clause in its lease failed.
The High Court held that the partitions were chattels. It took into account:
• That the partitions were standard demountable
• The object and purpose of the annexation. The configuration of the partitioning was unique. It resulted in a series of small offices, which was to benefit the tenant rather than to afford a lasting improvement to the premises.
The court came to the conclusion that the partitioning substantially prevented or interfered with the landlord’s right of possession meaning that the tenant had not given vacant possession of the premises on the break date.
Tenants need to be extremely cautious when exercising a break clause in a commercial lease. The exercise of a break clause by the tenant part way through the contractual term of the lease usually has financial implications on a landlord. This means that the landlord will look for a reason not to accept the break.
If the tenant has not complied with the break clause and the break notice is ineffective then the lease will continue until the end of the term or to the next break date (subject to the break clause conditions being complied with). This means that a tenant can end up paying rent for a number of additional years when it had originally had no intention to carry on the lease until the end of the term.
Most break clauses contain conditions that must be complied with for a break to be effective. The most common condition is that the rent and any other charges due under the lease (insurance rent, service charge, etc.) are paid fully up to date. This means that on the break date the rent must be fully paid up to the next rent payment date. This often means that tenants will be paying rent in respect of a period that falls after the break date. Some leases will include an obligation on the landlord to repay any advance payment of rent once the break has been effective. If the break clause does not include such a condition then then the landlord is under no obligation to pay back any overpayment of rent after the break date.
Other conditions which are commonly seen in break clauses are:
• that the notice must be served within a specified time period. If the notice isn’t served within that specified time period then the break clause will fail,
• that the tenant must have complied with its repairing obligations, decoration obligations and other tenant covenants within the lease, and
• that the tenant must give vacant possession on the break date.
It is important that tenants check the terms of the break clause in their lease before entering into the lease and again before serving a break notice. Tenants should ensure that they are able to comply with all the conditions before serving a break notice on the landlord.
Ramsdens Commercial Property Team can advise on break clauses and help exercise a break clause to ensure that the break is effective.