When does a commercial property become vacant under a lease agreement? This was the question considered in a recent hearing in the Court of Appeal.
The appeal was brought by haulage and storage firm NYK Logistics (UK) Ltd., a former tenant of Netherlands property owner Ibrend Estates BV. On 3 April 2008, NYK had signed a two-year continuation of an existing lease with Ibrend, on a warehouse property with offices and secure yard space, at a yearly rent of £278,000 for some 80,000 square feet in total. The schedule to the lease included a tenant break clause, allowing NYK to terminate the lease on 3 April 2009, provided six months’ notice was given, all rent was paid up to that date and NYK delivered vacant possession on that date. The dispute arose as to whether or not vacant possession had been given on the date specified under the lease agreement.
It was agreed that on 26 September 2008 NYK had given valid notice to end the term of the lease on 3 April 2009. In January 2009, surveyors for Ibrend were instructed to prepare a schedule of dilapidations on the premises. The resulting schedule was not passed to NYK until 11 March. NYK proceeded with repairs and requested a site meeting to review the progress of the works. The meeting did not take place until 1 April 2009, two days before the lease was due to end.
At the meeting, it was agreed that most of the repairs had been completed, but there were still outstanding defects. The County Court found that it was clear that the outstanding matters could not have been completed by 3 April but could have been completed shortly thereafter.
Following the meeting, NYK proposed that it should extend security at the premises for a further week and continue with the repairs but without further payment of rent. Despite various attempts to obtain a response from Ibrend’s representatives, no agreement was reached regarding NYK’s briefly extended presence on the site. On 9 April, the work having been completed and attempts made to return the keys to the premises, a solicitor’s letter from Ibrend notified NYK that it had breached the vacant possession clause in the lease agreement.
NYK expressed outrage at the letter and won some sympathy from Sheffield County Court. The Court ruled in favour of Ibrend, however, on the grounds that although NYK had remained on site purely to effect the agreed repairs, they should have handed over the keys on 3 April. Had they done so, the fact that some repairs would have been left undone would not have breached any term of the lease.
At appeal, it was argued that NYK’s continued presence on the site for a few days after the 3 April deadline was minimal and did not hinder Ibrend’s access to the site. It was held, however, that in order to satisfy the vacant possession condition in the break option, NYK had to give such possession to Ibrend by midnight on 3 April and not a minute later. At the moment that vacant possession is required to be given, the property must be empty of people and the rightful occupier must be able to assume and enjoy immediate and exclusive possession, occupation and control of it. In so stating, the Court of Appeal dismissed the appeal. NYK must therefore pay rent for the period of rental from 3 April until the next available termination date of 25 December 2009.
Click here for tips on terminating leases for tenants.