Green Dilapidations: more sustainable commercial property leases
Commercial building owners and occupiers are increasingly looking to fulfil their net zero carbon ambitions with measures beyond more sustainable development and energy performance practices. In particular, the current property leasing cycle and non-sustainable dilapidations processes are generating quantities of waste and carbon, which can be mitigated with a more sustainable approach: Green Dilapidations.
TFT’sGreen Dilapidations services are designed to help clients reduce the additional material, resources and cost associated with repeatedly fitting out and stripping out commercial property spaces over their lifetime. Taking a long-term view of tenancy, occupier and market requirements, we help our clients benefit from a more efficient, sustainable dilapidations process for both landlord and tenant.
Our support is rooted in facilitating better collaboration between stakeholders. That means the landlord and tenant of course, but also agents and the wider supply chain. Our sustainable building knowledge, commercial understanding and dilapidations expertise helps to formalise a better system as a whole.
We see a greater appetite from our landlord and tenant clients to adopt Green Dilapidations services. A notable occupier client is one of the leading property litigation practices, who we are helping to exit their existing offices in this way. Our recent seminar on green dilapidations in June was well attended by a cross-section of the industry, showing the breadth of interest for specialist advice on the subject.
It’s not just for offices either, and can be used for retail, industrial and other commercial property sectors.
Vacant Possession just got more complicated for tenants
TFT dilapidations specialist Jon Rowling explains a new concern for commercial property tenants trying to achieve ‘vacant possession’ for a lease break. They may have been careful not to leave too much behind, but now they also need to be careful not to take too much away.
Tenants wanting to exercise a lease break option always have to be cautious, because the conditions are interpreted strictly and precisely by the courts. With one false move, the lease term continues.
Having to provide vacant possession (VP) is still a common hurdle. Whilst there is case law supporting its definition, uncertainty remains as to what tenants need to do to achieve it.
Since Riverside Park Ltd v NHS Property Services Limited  EWHC 1313 (Ch), there has been some uncertainty as to whether tenants only need to remove chattels, or whether fixtures also need to be removed. An additional complication arises if the break clause condition calls for the tenant to be “not in occupation”, because it’s not always clear what that means.
In this case the tenant had to provide vacant possession of the “Premises” (as defined). The court held that the tenant failed to do so, and therefore the break failed. It failed because the tenant failed to yield up the Premises. In fact the question of VP doesn’t seem to have been necessary to consider because the decision seems to have made based on the definition of the Premises.
The tenant knew they needed to remove their own fit out and did so. However, they also removed (or had previously removed) significant elements of the landlord’s building including air conditioning, ceilings, fire barriers, radiators, lighting, floor boxes, small power etc.
The definition of the “Premises” included:
“… all fixtures and fittings at the Premises whenever fixed, except those which are generally regarded as tenant’s or trade fixtures and fittings…”
Essentially, because the tenant had removed landlord’s fixtures, it had not yielded-up the Premises. Too much of the Premises was missing.
Tenants who have to achieve VP have always been cautious about leaving too much behind, but now they also need to be cautious about taking too much away. Potentially, the fact that the items removed by the tenant in this case were so substantial might mean that other tenants who remove just a little bit too much could draw a distinction between their case and Capitol Park v Global Radio?
The case is also interesting, particularly for surveyors, because it raises further commonly encountered issues:
That ‘agreements’ with your opposite number should be recorded in writing, to avoid the uncertainty and expenses of an estoppel argument
That some surveyor-to-surveyor correspondence, and surveyor-to-client correspondence can be seen by the court
That tenants preparing for a conditional break, where building works are required to be completed, should press ahead with that work until such time as a financial agreement and surrender is agreed between the parties. Don’t stop work in anticipation of a settlement being reached
Riverside v NHS was mentioned in the judgement, but we still don’t know whether tenant’s fixtures also need to be removed to achieve VP
The case didn’t consider what the phrase “not in occupation” means.
Capitol Park Leeds plc v Global Radio Service Ltd considered whether the removal of landlord’s fixtures was enough to frustrate a VP condition to a break, or whether the removal of the landlord’s fixtures should be considered as part of a dilapidations claim, after the successful exercise of the break. The judge preferred the former option, but leave to appeal has been granted.
Are you a landlord or a tenant of commercial property with queries about a lease, dilapidations or dispute resolution?