Capitol Park Leeds v Global Radio Services

Judgment has recently been handed down in the case of Capitol Park Leeds Plc v Global Radio Services Ltd [2020] EWHC 2750 (Ch). The case highlights how things taken away from the premises can frustrate vacant possession in a similar way to things that are left behind.

Facts

Global (“the Tenant”) sought to exercise a break terminating the lease on 12th November 2017. The break was conditional on the Tenant “[giving] vacant possession of the Premises” at the Break Date.

The Tenant served notice on Capitol (“the Landlord”) on 15th February 2017, to terminate the lease on 12th November 2017. Between 15th February and 12th November 2017, the parties, through their respective agents, held site meetings to discuss potential dilapidations issues. The Tenant instructed contractors to strip out fixtures in the Premises as part of their remedial works. However, the Tenant halted the works before the remedial works were complete. This resulted in the Premises being handed back to the Landlord in an empty shell-like state, with the Tenant having stripped out various features and/or fixtures, such as ceiling tiles; fire barriers; floor finishes; windows sills; ventilation duct work; pipework connections for the fan coil unit system; heating pipework; office lighting, floor boxes, amongst other items.

The Landlord argued that the Tenant had not provided vacant possession and that the Break was ineffective. In determining the case, the High Court considered authorities on contractual interpretation and what is meant by vacant possession.

Vacant Possession

It was common ground that the Tenant, upon exiting the Premises, stripped out both its own fixtures, as well as 17 original fixtures which the Landlord claimed for in its particulars of claim, but the Tenant, whilst acknowledging that it may be in breach of covenant in respect of repairing obligations under the Lease, and therefore liable for dilapidations, argued that it had given vacant possession on the Break Date.

The Landlord’s case was that in returning the Premises on the Break Date, minus the stripped-out elements, the Tenant did not give back the ‘Premises’. This is because the definition of “Premises” included: (a) the existing building which was there when the lease was granted; and (b) “all fixtures and fittings at the Premises whenever fixed (except Tenant’s fixtures)”. The Landlord accepted that there were two caveats to the requirement to deliver up the Premises under the lease clause, namely first, the de minimis rule and, secondly, that the Landlord could not complain if the reason why there had been a change in the property being delivered is because one of the parties had complied with their obligation in the Lease, e.g., compliance with an insurance obligation. However, those caveats did not apply in this case.

The tenant argued that the definition of “the Premises” referred to the Premises as they are from time to time and that those words should be interpreted in an “always speaking” sense, by reference to what is on the demised premises at any point in time. The Judge did not find favour with this analysis, accepting the Landlord’s contention that the line of authorities using the expression “always speaking” in relation to contractual interpretation had been used when referring to additions to premises which in law are treated as becoming part of the land.

A similar factual thread runs through the relevant cases dealing with the meaning of “vacant possession”, namely that they are cases concerning things left behind and not, as in this case, with things taken away.

The parties acknowledged that the authorities on vacant possession do not address the situation here where the property may have been left empty but devoid of essential fixtures and fittings. However, the Judge found that this was an ‘exceptional case’ satisfying the second test in the leading case of the Court of Appeal decision in Cumberland Consolidated Holdings Limited v Ireland and in Legal & General Assurance Society v Expeditors International Limited [2007] EWCA Civ 7, namely that the physical condition of the property was such that there was a substantial impediment to the landlord’s use of the property or a substantial part of it.

The Judge found that the purpose of including the words “all fixtures and fittings at the Premises whenever fixed (except for the Tenant’s fixtures)” and “all additions and improvements made to the Premises” in the definition of “the Premises” was to ensure the Tenant exercising the break right did not do so by handing back an empty shell likely to cause deterioration to the condition of the building services plant and installations and depreciation of asset value, amongst other things.

The Judge concluded that the Tenant unilaterally stopped the remedial works during its negotiations with the landlord’s agents; it did not do so by accident, and in doing so, it gave back “considerably less” than the Premises as defined by the lease.

The case is yet another reminder that a break condition requiring vacant possession is fraught with difficulties and should be resisted at all costs. It also highlights that the definition of “the Premises” should be carefully considered at the drafting stage as it can have unforeseen consequences further down the line, particularly where a break is exercised.

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