When possession is nine-tenths of property law
The Message: Tenants who serve lease break notices must vacate on time
The Case: The Court of Appeal has made clear what is required for a tenant to give vacant possession of premises for a tenancy break clause (NYK Logistics (UK) vs Ibrend Estates, 16.06.11).
NYK was the tenant of an 80,000 sq ft warehouse in Rotherham, where it paid annual rent of £278,000. It had the right to break the lease on 3 April 2009 or 25 December 2009, if the rent was fully paid, subject to at least six months’ notice and vacant possession by the break date.
On 26 September 2008, NYK served a break notice on its landlord, Ibrend, to terminate on 3 April 2009. It set about repairs as required under the lease. By 1 April 2009, NYK had vacated the premises but had inadequate time left to complete the repairs. Its surveyor, Mr Louch, met with Ibrend’s surveyor, Mr Leetham, that day to discuss the position.
It was proposed that NYK should be allowed an extra week to finish the works. NYK offered to maintain security at the warehouse for that period, to return the keys and allow Ibrend access, but not to pay additional rent.
On 2 April 2009 Louch emailed Leetham to confirm the proposal. Louch chased him and Ibrend for a response but received none. Instead of abandoning the remainder of the repair works, returning the keys and ceasing to provide security guards on 3 April, NYK acted as though its proposal had been accepted. Its contractors entered the warehouse on 6 April and carried out works for the following four days.
On 7 April NYK chased Ibrend to return the keys. Ibrend contended that possession had not been given up, so the break notice was ineffective. NYK then served a further break notice to terminate the lease on 25 December 2009, in case the first notice was invalid. The dispute related to liability for rent and rates between 4 April and 25 December.
NYK argued that it did not fail to give vacant possession, as it had made clear the basis of its occupation. There was no substantial impediment to Ibrend’s occupation and the repairs were for the landlord’s benefit.
The court stated that what was required for vacant possession was no different from a sale: the premises simply have to be empty of people and any substantial goods, so that the landlord can enjoy immediate and exclusive possession.
The court noted that NYK had done nothing to make clear it had given up possession by the break date. It had offered but not returned the keys, and had retained control of the premises and continued with works the court held were for its own benefit, as it was seeking to avoid any damages liability for dilapidations.
The court made clear that a willingness on the part of the tenant to allow its landlord access did not amount to giving up possession. It noted that NYK realised what was needed and had not taken the only safe course of vacating when no agreement to an extension was forthcoming. If NYK had taken legal advice, the court would have expected its lawyers to advise it to vacate.
The appeal failed and NYK was liable for the further rent and other expenses. Tenants need to appreciate that dilapidations liability should be secondary to giving vacant possession.
Summing up: NYK v Ibrend
- NYK stayed in the building for a few days after its lease break to finish works.
- Ibrend said NYK needed to give vacant possession to activate its break clause.
- The court found vacant possession could not be given if a tenant is still using a premises or has a substantial amount of possessions in it.
First seen in Property Week, 8 July 2011.