We frequently hear the term "vacant possession" used in commercial property leases and deeds; to the untrained eyes it means handing back the property to the landlord after removing all movable items, but what many tenants do not recognise is that it could also include the removal of any pre-approved fitting out works.
A licence to alter should be reviewed with care to ensure the tenant is not caught out at the end of its lease, especially as dilapidation costs could be extortionate if these matters are not addressed properly.
It is also essential that tenants pay particular attention to all the conditions in the licence, as non-compliance renders the licence invalid and any fitting out works arising from it would become unauthorised. So even if the lease and the licence state that the landlord would need to give notice, if it requires reinstatement at the end of the lease, by failing to comply with the terms of the licence, the tenant would still be obliged to remove any partitions or fittings to avoid a dilapidation claim in any event, because the works are deemed unauthorised.
If at the end of the lease the tenant leaves its fixtures and fittings behind, the landlord can refuse to accept that it has been given vacant possession, unless the tenant is able to prove that:
a. the fitting out works are fixtures and not chattels;
b. the lease does not exclude from its definition of the property the tenants fixtures and fittings;
c. it has obtained the landlord's written consent for all alterations in accordance with the terms of the lease
d.the fit out works are completed without any variation from the plans and specification attached to the licence to alter; and
e. it is not in breach of any conditions in the licence to alter.
Whist the above is not exhaustive, following these simple guidelines will limit the tenant's financial liability at the end of the lease.
A right to vacant possession comprises the right to actual unimpeded physical enjoyment of the property. Lewison J has postulated this test as one to be examined from the perspective of the person to whom vacant possession has to be given – if there is a substantial impediment to his use and enjoyment of the property then vacant possession has not been given.