Court of AppealMonday 5 July 2021
Capitol Park Leeds v Global Radio Services  EWCA CIV 995
The Court of Appeal today handed down judgment in this high-profile case about tenant break clauses.
The case concerned a three-storey modern commercial unit, constructed in 2000, outside Leeds. It had been leased on 4 March 2002 for a term expiring 11 November 2025. The lease had been assigned to the current tenant, Global Radio Services Ltd, in 2014.
Clause 10 of the lease was a tenant’s break clause, giving the tenant the option to terminate the lease on 12 November 2009 or 12 November 2017, subject to certain conditions. One of the pre-conditions to the break clause, clause 10.1.4, was that the tenant should
“give vacant possession of the Premises to the Landlord on the relevant Tenant’s Break Date”.
Global sought to exercise the break clause on 12 November 2017. By that date it had stripped out of the unit a range of items including ceiling grids, ceiling tiles, fire barriers, floor finishes, pipework, lighting, smoke detection systems and radiators. The evidence showed that these items had been part of the original base build specification and so in law were landlord’s fixtures or elements of the building itself.
When the tenant sought to terminate the lease, the landlord contended that it could not do so because it had not given “vacant possession of the Premises”. “The Premises” was a defined term, which included both the original building and “all fixtures and fittings at the Premises whenever fixed”. The landlord therefore argued that, by removing significant elements of the building or fixtures, the tenant had failed to give back “the Premises” as required by clause 10.1.4.
At first instance, the Deputy Judge, Benjamin Nolan QC, agreed with the landlord. He also rejected a claim by the tenant that the landlord was estopped from relying on the alleged failure to comply with the break condition. He determined that the break condition was not satisfied and that the lease was continuing to run to its term date in 2025.
The tenant appealed and the Court of Appeal has overturned the Judge’s decision.
Newey LJ, with whom Elizabeth Laing and Moylan LJJ agreed, held that clause 10.1.4 was not concerned with the physical state of the unit but with whether the landlord was recovering it free of the conventional trilogy of “people, chattels and interests”. He contrasted clause 10.1.4 with break conditions considered in other cases which required tenants to have observed and performed their covenants. He also contrasted clause 10.1.4 with the yield up covenant, which did require the Premises to be yielded up “in a state of repair condition and decoration which is consistent with the proper performance of the Tenant’s covenants”. The fact that the break clause made no mention of repair or condition, when the yield up covenant did, added support to the tenant’s case that the break clause was not concerned with such matters.
The Court also considered that the landlord’s interpretation of the clause would have implications which the parties were unlikely to have intended, including an inconsistency with the yield up covenant if there were damage by an Insured Risk. It noted that the landlord was not left without a remedy, because it retained its right to damages for a breach of covenant.
Clause 10.1.4 therefore required the tenant to return the “Premises” as they were on the break date, free of people, chattels and interests. Whilst the building had been left in a dire state, that did not preclude valid exercise of the break clause and the landlord’s remedy was to seek compensation for whatever loss it may have suffered.
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