Partition argument leaves NHS wrong side of The High Court chattels ruling

Conditional break clauses have once again been the subject of The High Court scrutiny, with vacant possession in relation to the removal of chattels on the rolls.

In what could be a costly oversight, the case of Riverside Park Ltd v NHS Property Services Ltd was heard at The High Court. It held that the NHS’ failure to remove demountable partitioning rendered a break ineffective as it had failed to comply with a pre-condition requiring that vacant possession be given.

Once again the devil is in the detail and on this occasion Riverside granted the NHS a 10-year lease with break on the fifth anniversary. The NHS was required to give six months’ notice in prescribed form and give vacant possession to Riverside on or before the break date to exercise the break.

The premises were open plan when the lease was granted but the NHS erected a number of partitions and other items (under licence for alteration) which weren’t removed before the break date. Riverside claimed that the partitions were chattels and the break was ineffective as, by remaining in the premises, vacant possession wasn’t given. The High Court agreed.

The court’s interpretation was that the licence for alterations required the NHS to have removed the partitions. It was therefore the Premises without the alterations which needed to have been vacated.

Key elements to the case included:

• If standard demountable partitions – not fixed to the structure but held in place by screw fixings fixed to the raised floor and suspended ceiling (electrical installations within the partitions didn’t alter this view)
• Their configuration was unique to NHS as the specific layout was not generally what other tenants looked for
• It didn’t afford a lasting improvement to the premises and prevented/interfered with Riverside’s right of possession

So, the key lesson to be learnt?

1. Any tenants needing to comply with a vacant possession obligation should be very careful and take advice on any entitlement to leave something behind. Alterations can certainly complicate things further in this respect.
2. The Court also gave guidance was given on whether other items left at the premises frustrated vacant possession.  The court concluded that, despite earlier cases finding kitchen units to be fixtures, in this instance they were chattels. Equally, floor coverings, window blinds, and water stand pipes within a large meeting room were chattels as they could easily be removed without injury to the premises.

In this case if these items alone were left behind – excluding the partitioning – then vacant possession was likely to have been given. A side issue of failing to return key fobs which could be centrally deactivated in this particular circumstance or to deactivate an alarm system also did not frustrate vacant possession.

This won’t be the last time this particular issue is tested in court as each case will still be examined on its own merit but the issues over what constitutes chattels or fixtures needs to be clear from the outset. If you don’t, it could be a very costly oversight.