A legal case that took vacant possession a step too far…

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During these difficult times many tenants have found themselves in the position of wanting to divest themselves of surplus property, to reduce rental commitments by ending a lease agreement before it full term has expired.

Perhaps the only way of doing this from the tenant’s perspective is by exercising a break clause, if there is such a provision in the lease. It is very common that leases have these provisions, but tenants should be aware that the more favourable these clauses to them may be, the higher the rental valuation also may be.

Conversely most commercial landlords will want to resist the ending of the lease thereby, “letting their tenant off the hook”. This is because they will become liable for all vacant costs, business rates, increased insurance costs and utilities charges, at a time when it may often be difficult to find another willing tenant.

The break clause

Break clauses are common in most fixed-term commercial leases, allowing tenants and landlords to bring a lease to an end early on specific dates. However, these processes are often fraught with difficulties as often the break conditions are not straightforward. Examples of general conditions might be to offer up the property with vacant possession having complied with the terms of the lease, rent payments being up-to-date a principle condition here.

However, there are often other specific conditions to be met and the wording in the lease can often be open to interpretation on this, leading to legal disputes. Such was the situation with Capitol Park.

Here the tenant in Capitol Park Leeds plc v Global Radio Services Ltd [2020] tried to exercise a break clause. This High Court case revolved around the interpretation of whether a break clause condition requiring ‘vacant possession of the premises’ had been complied with.

The lease had a further 8 years to run and no doubt the landlord was reluctant to take back possession. As in most legal cases involving commercial lease break clauses, it turned on whether a break clause condition had been complied with or not, and by implication whether the lease was truly at an end or still continuing.

Notice is served

Global had correctly served notice on the landlord to exercise the break, as per the lease, which stated that the break was conditional on the tenant giving ‘vacant possession of the premises to the landlord on the break date’.

The said premises included the original building on the land and in addition, “all fixtures and fittings at the premises whenever fixed”, excepting the tenant’s trade fittings and all additions and improvements made to the premises.

However, Global had stripped out not just their own fittings. It had also removed many of the landlord’s fixtures including such items as ceiling tiles and grids, lighting, window sills, floor coverings, finishes and pipework, leaving what was effectively an empty shell.

In addition, a dilapidations survey revealed a considerable amount of work needed to replace a broken heating system and boilers, and air conditioning repairs which the tenant had failed to deal with, but had unsuccessfully tried to negotiate a cash settlement with the landlord.

The landlord, Capitol challenged the validity of the tenant’s exercise of the break clause arguing that the gross removal of the fixtures and fittings meant that the tenant Global had not given them vacant possession of the premises.

The High Court’s interpretation

The Court had to first determine the true meaning of the term ‘vacant possession’ in relation to a commercial lease. Most references to previous cases the court could rely on involved tenants leaving items behind when offering up the premises, as opposed to, in this case, having too many things taken away.

The landlord had produced for the court comprehensive evidence of the ‘undesirable outcomes’ the tenant’s actions would cause, including business interruption, damage to the premises and safety issues involving breaches of statutory regulations.

The judge decided that the landlord, through the precise wording of the lease, had taken measures to guard against these undesirable outcomes. With the inclusion of words relating to the fixtures and fittings and all additions and improvements, the landlord had sought to ensure that a tenant exercising the break clause could not do so by handing back a dysfunctional and un-tenantable empty shell.

The judge decided that the tenant had handed back considerably less than ‘the premises’ as defined by the wording of the lease and therefore that the ‘vacant possession of the premises’ condition had not been met.

The judge concluded that the state of the property was “an impediment which substantially prevents or interferes with the enjoyment of the right of possession of a substantial part of the property” and therefore the lease “had not been broken and was therefore continuing.”

Permission to appeal to the Court of Appeal has been granted in this 2020 case, so watch this space.

The lessons:

The wording of a commercial lease is critical when it comes to break clauses as the courts will interpret these leases quite literally, without undue attention to what could have been or is obviously the intentions of the parties.

In Mannai Investment v Eagle Star [1997], Lord Hoffmann had famously said and set the tone on this:

“if the [termination] clause had said that the notice had to be on blue paper, it would have been no good serving a notice on pink paper, however clear it might have been that the tenant wanted to terminate.”

In stating this the judge painted a very vivid picture of the need for strict compliance with contractual break conditions and provisions. More recent case law has reaffirmed this strict approach that judges will take.

If disputes are to be avoided, both tenants and landlords should pay particular attention to the wording of these break clauses, and ideally seek competent professional advice, when leases are being signed.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – A legal case that took vacant possession a step too far… | LandlordZONE.

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EXPERT: Government’s heat pump plans will be a ‘car crash’

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Popular YouTuber and building expert Roger Bisby has warned landlords and homeowners that plans to ditch gas boilers for heat pumps are a “car crash coming in slow motion”.

The government hopes to fit 5.5 million heat pumps in UK homes by 2030 with the aim of phasing out all gas boilers by 2035, while landlords tasked with raising the energy efficiency rating of all their properties to at least band C by 2028 are being encouraged to consider green alternatives.

However, Bisby tells the 200,000 people on the Skill Builder channel who watched his video so far that after getting a £4,000 government grant for a heat pump, you’d have to spend £16,000 to make it work.

He also reckons that running a heat pump is roughly three times more expensive than running a gas boiler. “After a couple of years of having one, people see their house isn’t warm – you’re paying three times as much for your fuel bills,” he says.

Lovely houses

“They might work in lovely houses that are beautifully insulated and draft-proof but they don’t work well enough in our housing stock.”

Bisby explains that a heat pump is like a fridge in reverse: a big box is hung on the wall with a fan inside that sucks in hot air which it sends into the house in a couple of pipes.

A buffer tank is used to distribute heat into the house and produce hot water. “I’ve put them on a patio and people say their neighbours complain about the noise of the fan,” he says.

Nottingham landlord Tricia Urquhart tells LandlordZONE that heat pumps are not a financially viable solution for most people. She says: “On an electricity-only estate where I own a BTL, houses have storage heaters, electric radiators and one has a heat pump – yet every EPC (bar one with storage heaters due to expire shortly) is a D or E, so even if you fit the government’s preferred electric heat source, the property would still be un-lettable under the EPC C proposals about to be put before Parliament.”

Watch Bisby’s video

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EXCLUSIVE: Council buries high cost of unpopular PRS licensing schemes

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Charnwood Council in Leicestershire has given two licensing schemes the go-ahead despite opposition from local landlords about its effectiveness and fees.

The council hasn’t made it easy for landlords wondering how much it’s going to cost, as details about the £700 fee for each scheme weren’t provided in the recent announcement and had to be searched out in previous proposal documents.

This is not a surprise – £700 is at the upper end of licensing scheme costs in the UK. For example, similar licensing schemes recently launched in South Tyneside cost just £550 for five years.

Charnwood council, which covers the student town of Loughborough, will introduce both schemes in January 2022: an additional HMO licensing scheme for those properties occupied by three or four unrelated tenants and buildings converted into self-contained flats which are occupied by tenants, as well as a selective licensing scheme which focuses on privately-rented accommodation in the Hastings and Lemyngton wards.

East Midlands landlords in EMPO believe it will only increase rents, as landlords faced with additional costs to comply with licensing will probably pass these on in rent, meaning that those on low incomes won’t be able to afford to stay in the properties and could lose their homes.

However, councillor Paul Mercer (picture) lead member for private housing, says the schemes will help improve the standards of properties for tenants and the impact HMOs have on the local area.

He adds: “I am pleased the conditions for these licensing schemes have been approved and we can now move forward with implementing the schemes from January 2022.

“There are many good landlords in the borough who care about their tenants and understand their broader responsibilities, but we have some properties which are poorly managed or have a negative effect on the community.”

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ADVICE: Flash flooding chaos leaves no room for complacency

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The devastating upheaval caused by last week’s torrential rain and floods in London and southern England as two months’ rain fell in two hours was put into stark perspective by the worst flooding in decades in Germany and Belgium, which has left at least 188 people dead, sweeping away houses and leaving residents trapped in rising waters.

Climate scientists have been shocked at the intensity and magnitude of the recent floods across Europe. But as climate change is expected to make unpredictable and extreme weather, including heavy rain, more common, it’s clear that both governments and property owners need to step up their planning and preparedness.

The torrential rain may have given way to a mini heat wave in the south of England for now, but with unsettled and changeable weather on the horizon, there is no room for complacency. As Steve Barnes, Associate Director at LandlordZONE insurance partner, Hamilton Fraser Total Landlord Insurance, highlights.

Devastation claims

“Although the floods in England cannot be compared with the devastation that has occurred in Europe, the destruction and chaos suffered by those affected is horrendous.

“We’ve received several claims relating to floods in the South of England over the past week due to exceptionally high levels of rainfall which were almost unprecedented.

“In one London incident relating to the flooding of three basement flats last Monday, the sewers in the road outside the property were unable to cope and sewage backed up, emerging from the toilets and baths. Each flat was inundated with water to a depth of around 30cm as the drains were unable to carry the rainwater away.”

One London resident told the BBC they hadn’t seen rain like it in 20 years, and the London Fire Brigade tweeted that it had received more than 150 calls about flooding in south west London alone.

Flash flood case study

Hamilton Fraser Total Landlord Insurance has also received claims relating to flash floods in the Peterborough area, which were widely reported in the media last week. Again, backed-up sewer pipes and water drains caused sewer water to enter a lot of properties in the area, with many having to be evacuated.

Melissa Choules, Senior Claims Technician at Hamilton Fraser Total Landlord Insurance (pictured), describes an incident relating to a fresh claim the company has received.

“The tenant was working and did not return to the property until the following morning, when she discovered that the water level outside the rear door was up to one meter and the water inside had reached a height of 60cm,” she says

“Not surprisingly, the damage is extensive – the laminate floor throughout the property will need to be removed to enable sanitisation and drying works to the concrete slabs and walls. All joinery items, including skirting boards, doorframes, doors, base units and worktops, will need to be removed and replaced.

“Plasterboard in every room will require removal up to one meter high. The kitchen base units and panels will also all need replacing. Damage caused by severe weather can be very expensive to rectify – our average claim for flash floods is £17,708, so it pays to be protected.”

Warnings criticism

As heavy rain continues to wreak havoc in Europe, Germany’s government has hit back at criticism over its ‘fragmented’ warning systems, which meant that in some places people didn’t realise the floods were coming or know how to respond to protect themselves and their homes.

Speaking to the BBC, Friederike Otto, associate director of the Environmental Change Institute at the University of Oxford, said urgent education was needed on the risks of flooding.

“I think people are really not aware that weather can actually be deadly,” she said. “The fact that so many soils are sealed also leads to more dramatic impacts than would be the case if the water could go somewhere,” she added.

Steve Barnes emphasizes that landlords also have an important role to play in educating themselves and their tenants and implementing measures to protect their tenants and their properties against the risk of flooding.

“With extreme weather events increasing steadily over recent years, it’s vital for landlords to not only do as much as possible to prevent flooding in the first place, but to make sure they communicate with their tenants and are properly covered for flood damage,” he says.

“Provide tenants in at-risk areas with a decent supply of sandbags, and make sure your tenants know what to do in the event of a flood – for example, how to turn off the gas, electricity and water. These recent floods and unpredictable weather highlight the need for landlords and tenants to be prepared at all times – as we’ve seen, flash floods can occur with little warning.

“The best way to reduce the likelihood of damage to your property is through regular maintenance. If you take the right preventative measures and have comprehensive landlord insurance in place, you can be confident that you’re doing all you can to protect your tenants and your business.”

Landlord responsibilities

Landlords should be aware that they are legally responsible for maintaining and repairing external structures, including drains and gutters, so it’s particularly important to make sure they are kept clear of debris that might cause a blockage and lead to leaks or overflow to the property. Make sure tenants always inform you if repairs are needed so that you can address the issue.

It’s also a good idea to sign up for flood warnings. These will warn you of the risk of flooding from rivers, the sea and groundwater. You’ll be alerted by phone, email or text when flooding is expected.

You can find out more about how to protect your rental property from severe weather in Hamilton Fraser Total Landlord Insurance’s comprehensive guides, Protecting your rental property against storms and Measures that must be taken to prevent flooding in your properties.

The importance of landlord insurance

Having comprehensive landlord insurance in place provides reassurance that you and your property are protected should the worst happen and you need to carry out expensive repairs. Check your insurance to make sure your landlord buildings and contents insurance includes flood damage and make sure your tenant knows that it’s their responsibility to protect their belongings with their own contents insurance.

A comprehensive policy like Hamilton Fraser Total Landlord Insurance’s Premier policy will not only cover the cost or repair work, but also loss of rent or alternative accommodation.

As a valued LandlordZONE reader you’re entitled to 20% off Hamilton Fraser Total Landlord Insurance’s policies, call the team today on 0800 63 43 880 quoting code LZ2021 or get a quote online in under 4 minutes.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – ADVICE: Flash flooding chaos leaves no room for complacency | LandlordZONE.

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Online Boiler Company Offers Landlord Solution

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Most landlords can likely vouch for the agony of having a tenant with a broken boiler. A phone call screaming you out of bed at midnight, a furious and passive aggressive early morning WhatsApp or traumatised letting agent softly passing on the message with some admirable censorship.

Heatable.co.uk, a rapidly growing digital boiler buying platform founded in 2017 was designed to solve boiler buying problems for UK homeowners, but has inadvertently become a hit with landlords for its incredible ease of use and simplified process.

The Heatable Process:

• Self-survey on heatable.co.uk
• Choose and book installation date
• Boiler installation is completed

The boiler installation purchase process has traditionally been a sluggish one, requiring landlords to arrange multiple property surveys to ensure a fair price – a process that could take days if not weeks itself before finally agreeing upon a service, price and installation date that will incur a further delay. A delay which is fair to say the vast majority of tenants will not display great patience for – understandably so.

Achieved through close partnerships with manufacturers, the introduction of digital tech and low overheads, Heatable have simplified this process phenomenally in addition to offering incredibly low prices, often 20% cheaper than leading competitors.

Pay monthly plans, including 0% interest options are also available.

From the point of ordering, all necessary confirmations, paperwork and correspondents will be issued to landlords directly via email and Heatable are happy to liaise with tenants or letting agents on their behalf – a treat for landlords that may even be more pleasing than their prices.

During the unfortunate age of Covid-19, Heatable have also provided another accidental solution to the problem of multiple people/surveyors attending a tenants property prior to a confirmed installation. Global pandemics have understandably only shortened the tethers of cold showering tenants.

Their online self-survey eradicates the requirement for physical inspection of the property, and offers the reassurance of just one home appointment.

Payment & Payment Options:

Traditionally, a worry for a new boiler buyer has always been ‘surprise’ costs – essentially heating engineers on the day finding totally ‘unexpected’ works that have to be completed; most common of which is a new gas pipe supply.

Heatable’s fixed price eradicates that problem and payment is secured up front, leaving landlords with no financial concerns once the order is placed. No frantic eBay selling session required.

For landlords in the throes of a multiple property problem disaster – when it rains, it pours – Heatable also offer pay monthly options between 1-10 years, with interest free options available over 2 years on selected new boilers.

For returning landlords, blessed with multiple boiler breakdowns – Heatable will offer £100 discount each installation after the first booking.

A previously agonising and stressful process for landlords has been revolutionised.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – Online Boiler Company Offers Landlord Solution | LandlordZONE.

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