Court case sparks warning for commercial tenants

A landmark High Court ruling decided by Leeds District Registry could have significant consequences for commercial property tenants when looking to exercise their option to break a lease.

In a decision which could impact commercial tenants across the region, the NHS has been ordered to pay rent for the remainder of a lease at premises it has not occupied since 2013, because the court ruled that partitions installed by the tenant had prevented vacant possession.

The open plan office was originally let on a ten year lease in 2008 with an option to terminate half way through, providing that they gave six months’ notice and vacant possession of the premises to the landlord.

When some items were left behind, including partitions which had not been in place at the start of the lease, the landlord claimed that they were removable possessions, as opposed to fixtures – notably because they were only ‘slightly attached’ by screws to the ceiling and floor and were not ‘fixed’ to the premises. The NHS argued that the partitions were tenant fixtures which they had a right, but not an obligation, to remove – and that if the landlord had wanted them to be taken down, they should have requested so.

The Court was however persuaded that a series of small offices was not what prospective tenants wanted and it found that the presence of the partitions did prevent vacant possession – meaning that the NHS is liable to pay rent for the remainder of the original lease up to September 2018.

Samantha Bell, a commercial litigation solicitor at Gordons, said: “Tenants have always been held to strict compliance with options to break leases, however this case – although only a first instance decision – arguably takes the law on vacant possession much further and gives the landlord even more ammunition to frustrate the tenant’s attempts to break a lease.

“It is fair to say the decision was harsh on the NHS and it may be that the case will be overturned if the tenant appeals, or be considered only to apply on the specific facts of this case. In the meantime, it will be very worrying for tenants that have recently exercised or are planning to exercise a right to break a lease.

“Until the law here is reviewed again, the best approach for tenants is to take specialist advice and be prepared to strip out. If a tenant fails to comply with a condition of vacant possession on an option to break, they will be liable for the remaining term of the lease.”