Riverside Park Limited v NHS Property Services Limited [2016]

What constitutes vacant possession?

The background

The tenant, an NHS Trust, exercised the break option contained within its lease of office premises on the Wirral. As is the norm, exercise of the break was conditional on the tenant giving up vacant possession of the premises.

During the course of the lease term, the tenant had carried out a number of authorised internal alterations, including the erection of internal partitioning. Following the break date, the tenant was found to have left at the premises a substantial quantity of partitioning, kitchen fittings, floor and window coverings, an alarm system and water stand pipes. The landlord argued that the tenant’s exercise of the break option had been invalid.

The law

The parties’ arguments centred on whether the items left behind constituted fixtures or chattels. The tenant argued that items annexed to the premises became fixtures, which, under the terms of the lease and the Licence for Alterations, it was not required to remove.

The landlord’s case stated that a number of items were chattels, which the tenant was required to remove and which interfered with the landlord’s enjoyment of, and ability to relet, the premises.

In addition to a requirement to reinstate the premises at the end of the lease term, the Licence for Alterations required that the tenant obtained necessary consent and approvals to the carrying out of any works at the premises, and written notice from the landlord that those approvals were acceptable to it. The tenant acknowledged that it had not complied with these terms.

The case reached the High Court, which referenced Legal & General Assurance Society Ltd v Expeditors International (UK) Ltd [2006] in citing:

“…whether something is a fixture depends on the degree and purpose of the annexation; in each case looked at objectively”

In summary, whether an item is a fixture or chattel depends very much on the circumstances of each case. The High Court focused on determining whether the internal partitioning in Riverside Park constituted chattels as a means of guiding it to a decision on the remaining items.

The decision

The High Court held that the internal partitioning in this case was classed as a chattel; it was attached by screws to the raised floor and suspended ceiling, and was not affixed to the structure of the building. Partitions could be easily removed without injury to any part of the building; further, they contributed significantly to the landlord being unable to enjoy the premises following exercise of the break.

The tenant was held not to have given up vacant possession, and therefore the break option had not been exercised.

J B Leitch’s Phil Parkinson comments on the decision:

“Riverside Park is a useful reminder of the practical effects of commonplace break option conditions. Landlords are entitled, subject to the specific terms of their leases and Licences for Alterations, to receive back from tenants premises which are in a good condition and emptied of tenants’ chattels. Break conditions should be carefully considered by both parties prior to completion of a lease, and tenants must pay particularly close attention to them when exercising a break; for a break to be invalidly exercised can prove incredibly costly.

Further, tenants are reminded that landlords’ approval to consents is a common condition which is frequently overlooked. As in this case, failure to comply with a condition can impact on the valid exercise of a break option which is conditional on vacant possession.”