01 December 2011
Draft_RAM_1_Lulled into Staying beyond the Break Date
For further information please contact Andrew Tugwell or Richard Manyon
A new case looks at the meaning of "vacant possession"
The case of Ibrend Estates BV v NYK Logistics (UK) Limited  EWCA Civ 683 shows the importance of giving primacy to the terms of a lease over any supposed understanding with the landlord when it comes to break notices.
In this case, a break clause was conditional upon payment of all rent up to the break date and the giving up of vacant possession of the property on the break date. The tenant served a valid notice bringing the lease to an end on 3 April 2009. In January 2009 the landlord served a schedule of dilapidations and entered into negotiations with the tenant as to what works were in fact required.
These negotiations, which were apparently conducted in a constructive and cooperative manner, were not concluded until around 1 April 2009. The tenant therefore suggested to the landlord that it would immediately arrange for its contractors to carry out the works and that the work would be completed within about 10 days (therefore stretching for about a week beyond the break date). The tenant would also provide security cover at the property during this period. The landlord did not respond to these advances and so the tenant decided to proceed, presumably fearful of an inflated dilapidations claim from the landlord if the works were left undone.
The repairs were completed by 9 April 2009 and the tenant returned the keys to the landlord. The landlord did not accept that the break notice had been validly exercised and instead applied to the Court for a declaration that the lease was continuing. Its argument was that vacant possession had not been given because the tenant still had workmen and security staff at the property beyond the break date.
The tenant, understandably aggrieved by the landlord's approach to the dilapidations issue, argued that it had in fact given up vacant possession on the break date and that, if this were not the case, the landlord had waived the breach in any event as they knew of the proposals to carry out the works and stood by.
The court held that the break was ineffective as the tenant had done nothing by midnight on 3 April 2009 to show that it was giving up possession. The keys had not been returned and there was no agreement that the tenant remained in the property as the landlord's licensee. Equally, there had been no waiver as it had made no election between inconsistent rights. The tenant was held to be treating the property in exactly the same way as it had done before the break date.
The lesson from the case therefore is that tenants should not be lulled into a false sense of security by wily landlords seeking to defeat a break notice. If the lease requires vacant possession by a certain date, this must be the priority. Dilapidations, or other outstanding breaches of covenant can be resolved by way of damages and negotiation later (so long as they are not conditions precedent to the exercise of the break).
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