A number of recent cases around vacant possession have addressed some interesting issues which fall outside standard definitions. Is vacant possession given up if the tenant did not return keys or left an alarm on at the premises? Nicholas Taggart considers

I had a case once, in which my client was the landlord of a warehouse. The tenant had served notice under the break clause, which contained the usual condition precedent that vacant possession be delivered up. My client was desperate to hang on to the tenant, so his managing agent decided to snoop round the premises just after midnight on the day after the break date.

By retaining the keys, the tenant is objectively exercising a right to control access to the premises, either by excluding the landlord or by letting itself back in

The agent’s first mistake was not telling anybody of his cunning plan. His second mistake was assuming the tenant would have deactivated any alarm. His third mistake was not assessing the risk that the premises – a bonded warehouse at a major port – would have a silent alarm with a direct line to the local constabulary. His fourth and most tragic mistake was letting himself in just after midnight on Boxing Day: it was late on the 27th before the police let him out of the cells.

For various reasons, we never had to argue whether leaving the alarm set was a breach of the obligation to give up vacant possession. But two recent break clause cases have had to address this, and the related question of whether the retention of the keys to the premises is also a breach. In Riverside Park Ltd v NHS Property Services Ltd [2017] L&TR 12, the High Court decided that retaining some keys and leaving the premises alarmed was not a breach of this obligation; but in Secretary of State for Communities and Local Government v South Essex College of Further & Higher Education [2016] PLSCS 249, decided the following day, the county court came to the opposite conclusion. Now what do we do?

In this article, I look at these recent cases and try to draw some lessons.

The basics and key recent cases

So, what are the basic elements of what an obligation to deliver up vacant possession requires? The classic case is Cumberland Consolidated Holdings Ltd v Ireland [1946] KB 264, at paragraphs 270-1. This was a sale-and-purchase case, where the contract required the seller deliver up vacant possession of a warehouse. The cellars under the warehouse were unusable, as they were six feet deep with sacks of hardened cement.

The Court of Appeal held that there were two limbs to the test for deciding whether the seller had breached the obligation to deliver vacant possession. First, was the seller making more than a de minimis actual use of the property for their own purposes? Second, was the physical condition of the property such that there was a substantial impediment to the purchaser’s ability to use the property, or a substantial part of it? By leaving the sacks of concrete in the basement, the seller failed both limbs.

This judgment has been considered and glossed many times, but there are two relevant cases for present purposes. The first is Legal & General Assurance Society Ltd v Expeditors International (UK) Ltd [2007] 1 P&CR 5. Mr Justice Lewison noted that the first limb of the test in Cumberland looks at the activities of the person who is required to give vacant possession, asking about their continuing use of the premises. The second limb requires one to look at the physical condition of the premises from the perspective of the person to whom vacant possession must be given, asking about the substantiality of the impediments to their ability to use the premises.

The second case is Ibrend Estates BV v NYK Logistics (UK) Ltd [2011] 2 P&CR 9 (CA) where Lord Justice Rimer said the following (with my emphasis).

‘The concept of “vacant possession” in the present context is not, I consider, complicated. It means what it does in every domestic and commercial sale in which there is an obligation to give “vacant possession” on completion. It means that at the moment that “vacant possession” is required to be given, the property is empty of people and that the purchaser is able to assume and enjoy immediate and exclusive possession, occupation and control of it. It must also be empty of chattels, although the obligation in this respect is likely only to be breached if any chattels left in the property substantially prevent or interfere with the enjoyment of the right of possession of a substantial part of the property.’

I shall come back to the importance of these italicised words below.

Not returning keys

In the Riverside Park case, the keys to the premises were electronic fobs. Not all of them were returned – apparently because the tenant had lost some of them. His Honour Judge Saffman held that this was not a breach of the obligation to give up vacant possession, because the missing fobs could be deactivated ‘at the press of a computer button’.

In the South Essex College case, the premises were secured externally by physical keys and internally by three punch-button locks. Neither keys nor codes were handed over. His Honour Judge Dight held that these failures, objectively assessed, amounted to an assertion by the tenant of its continuing use and control of the premises.

The judgment of Judge Dight is to be preferred as a correct application of the Cumberland Consolidated test, as explained in Expeditors and Ibrend Estates. As Judge Dight correctly held, the retention of keys falls into the first limb of that test.

By retaining the keys, the tenant is objectively exercising a right to control access to the premises, either by excluding the landlord or by letting itself back in. Subjectively, the tenant might have no intention of exercising any form of control, but this is immaterial: the question is whether the person entitled to vacant possession has been objectively given control of the premises, not whether the person obliged to give vacant possession subjectively intended to do so.

With respect, Judge Saffman appears to have made two errors. First, he failed to give effect to Lord Justice Rimer’s direction that the landlord must be ‘able to assume and enjoy immediate and exclusive possession, occupation and control’ of the premises. The landlord in Riverside Park was not locked out, but for as long as there were working keys in circulation, it could not be said that it was able to assume and enjoy ‘immediate and exclusive possession… and control’ of the premises.

Second, in addressing the landlord’s ability to deactivate the fobs after the break date, the judge confused the two limbs of the test: the substantiality of the impediment is part of the second limb, not the first limb.

Both Judge Saffman and Judge Dight quoted the passage from Lord Justice Rimer in Ibrend Estates that I have set out above. Interestingly, only Judge Dight noted that the tenant in Ibrend Estates had offered to return the keys to the landlord, but had not actually done so. The keys were on site, waiting for the landlord to collect them. (This was also the situation in Expeditors, where Mr Justice Lewison held that the retention of keys and leaving chattels behind was a breach of the obligation to give vacant possession.) If Judge Saffman had looked a little more closely at Ibrend Estates, he would have seen Lord Justice Rimer’s explanation of what the tenant should have done to comply with the obligation to give up vacant possession.

‘[The tenant] ought also to have known that… its only safe course was to move everyone out of the warehouse on Friday, including its security guard; to have e-mailed [the landlord’s] agent on that day to explain that that was what it was doing and that it would, the same day, deliver the keys to the agent.’

Moreover, neither judge appears to have been shown the break clause case of Mourant Property Trust Ltd v Fusion Electronic (UK) Ltd [2009] EWHC 3659 (Ch), in which the tenant had handed over two out of the three sets of keys to the landlord’s agents.

The High Court held that this failure, together with occupation of the premises by the tenant’s contractors, who were attending to dilapidation, breached the obligation to give vacant possession.

Subjectively, the tenant might have no intention of exercising any form of control, but this is immaterial: the question is whether the person entitled to vacant possession has been objectively given control of the premises

Leaving alarms set

In both the Riverside Park and South Essex College cases, the tenant left the premises alarmed and did not give the landlord the deactivation codes. Judge Saffman in Riverside Park held

that this was not a breach of the obligation to give vacant possession, because the failure was ‘more likely to have been an oversight’, and the landlord was readily able to get the alarm company to deactivate.

In the South Essex College case, Judge Dight held that leaving the alarm set was a breach: even though it could easily have been deactivated by taking the fuse out, leaving it set was an objective manifestation of the tenant’s continuing control of the premises.

Once again, Judge Dight’s decision is to be preferred, for the same reasons given above in respect of the retention of the keys. Objectively, leaving a building with an activated alarm, without giving the landlord the codes to deactivate, is an assertion of control over the premises, even if it is, subjectively, an accidental assertion.

What does this mean for tenants?

Although the Riverside Park case gives some support for the propositions that retaining keys and leaving the landlord or purchaser without the means to deactivate the alarm is not a breach of the obligation to give vacant possession, I would caution: ‘Don’t try this at home!’. Doing either of those things is most probably an objective manifestation of a continuing right to possess, occupy and control the premises, even when the landlord has some of the keys.

With keys, the only prudent course of action is to ensure that all sets are handed over. If some sets are missing, it may be necessary to change the locks so that all the working keys are handed over – although this may generate other difficulties in landlord and tenant cases, where the landlord has a right of access or the lost keys are to common parts.

With an alarm, leaving it deactivated is risky: the obligation to give vacant possession is breached if there are squatters in the premises (see Cleadon Trust Ltd v Davis [1940] Ch 940 (CA) and Herkanaidu v London Borough of Lambeth [1999] PLSCS 291). The better course of action is to ensure that the landlord or purchaser has the means to deactivate the alarm well before the obligation to deliver up vacant possession has crystallised.