The task of reviewing a licence to alter office premises is often delegated to a junior lawyer – a newly qualified solicitor or a trainee.
Perhaps their seniors feel their eyes glaze over at the sight of standard wording for some really rather inconsequential partitioning. Whatever the reason, the merits of a review by sharp eyes and an enquiring mind have been brought into focus by the recent case of Riverside Park Limited v NHS Property Services Limited  EWHC 1313 (Ch).
The case turned on whether the tenant had complied with the pre-conditions in a break notice. However, the first instance judgment provides insights to illuminate both dilapidations disputes and the dilemmas of insolvency practitioners.
The tenant had an internal non-structural demise and had fitted out its office space with partitioning. The fit-out was permitted by a licence to alter. Both the lease and the licence to alter required the landlord to give notice of any reinstatement the landlord reasonably required before the end of the term. The tenant wanted to exercise a break option which had two pre-conditions.
First, at least six months’ written notice must be given. There was no issue with that. Second, the tenant had to hand back the premises with vacant possession. Perhaps it is worth noting at this stage that the Lease Code does not recommend vacant possession as a pre-condition to a break right. Instead, the Lease Code recommends the premises are handed back ‘free from all rights of occupation’.
Apparently, hardcore pornography is hard to define but ‘you know it when you see it’. Vacant possession is similarly hard to define, but also hard to recognise, hence the Lease Code recommendation. Cumberland Consolidated Holdings v Ireland  1 All ER 284 enunciated two tests for vacant possession, which were considered in Legal and General Assurance Society v Expeditors International (UK) Limited  EWCA Civ 7.
A right to vacant possession comprises the right to actual unimpeded physical enjoyment of the property. Lewison J (pictured) 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. In Riverside Park, the landlord argued that the partitioning left behind by the tenant was a substantial impediment to his use of the property for letting purposes. The partitioning was described to the court as a rabbit warren, far from the open-plan layout preferred by most tenants.
However, the landlord had not given a notice of his requirement to reinstate. If the alterations were tenant’s fixtures, the tenant had the right but not the obligation to remove them. Fixtures would be integrated to the premises and therefore form part of them. This would mean that the tenant had left the ‘premises’. By contrast, if the partitions were chattels, then did their presence mean vacant possession had not been given? Other items were left behind as well, but if the partitioning should have been removed the other items were irrelevant to the outcome of the case.
The parties commissioned a single joint expert to determine what had been left behind and the manner in which it was attached to the premises. The partitioning was not fixed to the structural slabs below the raised floor and above the suspended ceiling: this is the method of fixing which was shown in the specification attached to the licence to alter.
Instead, the partitioning was fixed to the raised floor itself using screw fittings and to the suspended ceiling in the same manner. Solicitors will know that the mere fact of annexation does not make an item part of the land. It is the degree and purpose of annexation which determine whether that item is a chattel or a fixture. There is no definitive test – it is a question of fact in every case.
In this case, the expert described the partitions as standard demountable partitions, in no way fixed to the structure of the building itself. Removing the partitions would not, therefore, damage the building. The purpose of the partitions was unique to the tenant, to benefit the tenant rather than to effect a lasting improvement to the building. The judge held that the partitions were chattels. There were so many of them that they deprived the landlord of physical enjoyment of the premises. Vacant possession had not been given and the tenant had failed to comply with the pre-conditions to the break right.
What about the landlord’s obligation to give notice if reinstatement of fitting out works was required? The judgment sets out the most relevant parts of the lease and the licence to alter, useful for those embroiled in a case of this nature. The lease contained a definition of ‘premises’ which specifically excludes tenant’s fixtures – so even if the partitions were fixtures not chattels, they were not included in the premises. The licence to alter was expressly conditional on the tenant complying with its obligations.
These obligations included the obligation to do the permitted works in accordance with the specification attached; telling the insurers of the works; and notifying the landlord at the start and end of the works. The obligations themselves are not a surprise, but the conditionality is less usual. The commercial precedents from PLC and Lexis Nexis both provide for the licence to fall if the defined works are not completed within a specified timescale, but do not highlight the conditionality so starkly.
The obligation to reinstate arose when the licence to alter ceased to have effect, whether or not the landlord requested it specifically. The judge was clear that one of the benefits of the licence was to reassure the landlord that the works were of good quality; but different works were done. The insurers were not notified and this was held to be a material breach. The validity of the licence was conditional upon compliance with the conditions on which the licence was given.
As the conditions were not met, the fitting out works’ status became that of unauthorised tenant’s works, and therefore the works should have been removed automatically without the need for notice from the landlord. How could the landlord have known that the works had not been carried out in accordance with the specification? This all meant that even if the partitions were not chattels, the tenant should have removed them. Failure to do so meant vacant possession had not been given.
Practitioners will find some interesting practice points from the case. On sending or receiving a break notice, solicitors should review the lease and all supplemental documents carefully. The extracts of the documents in the case report do not record how far in advance the landlord had to request reinstatement, though reinstatement had to be ‘reasonably required’. This is perhaps a point for another case.
Until then tenant’s solicitors should specify that the timescale must be reasonable too, in order that the break cannot be frustrated.
Obiter comments are useful too. Readers who have had cause to study cases on surrender by operation of law will remember the significance of keys and their acceptance by the landlord. In this case, the tenant did not give back a number of electronic key fobs. The judge was not impressed by the landlord’s argument that the missing key fobs meant possession had been retained. The landlord could remove access electronically; and in any event the fobs were not given back because they had been lost.
Technology has provided a pragmatic solution to this age-old problem.