Riverside Park Ltd v NHS Property Services Limited

By a written lease (the Lease) dated 24 September 2008 the Claimant, Riverside Park Ltd granted a 10 year demise of Suite 4 Unit 2 Riverside Park, Bromborough, Wirral (the Premises) to Wirral Primary Care Trust (WPCT). The Premises were first floor premises in a building owned by the Claimant. At the time that they were let they were open plan by which I mean that the Premises were essentially one large work space.

Clause 6.10 of the Lease was a break clause entitling the Tenant to terminate the lease on 24 September 2013 provided that a notice of the intention to exercise the break was served at least 6 months before that date, time being of the essence. The clause provided that any notice exercising the break would only be effective to determinethis lease:

“if the Tenant gives vacant possession of the Premises to the landlord on or before (24 September 2013)”

On 18 March 2013 WPTC served notice on the Claimant exercising the option to break. On or about 1 April 2013 the residue of the term created by the Lease became vested in the Defendant, NHS Property Services Ltd, who became liable thereafter to make the payments due under the Lease and to comply with the other obligations that the Lease imposed upon the tenant. It also wished to take advantage of the opportunity to break the lease on the break date of 24 September 2013.

The Claimant, for whom Miss Zia Bhaloo QC appears, does not dispute that the notice served by WPTC was served at least 6 months before the break date of 24 September 2013 but contends that the notice was not effective because the Defendant did not give vacant possession of the Premises on that date as required by clause 6.10 of the Lease.

By paragraph 13 of the Particulars of Claim it is asserted by the Claimant (and this is not denied by the Defendant, for whom Mr Stephen Pritchett of counsel appears) that since the break date there has been present in the Premises

I shall refer to these collectively as the Works. These were not present when the Lease was granted and have been brought into the Premises thereafter by WPTC pursuant to a Licence for Alterations made between the Claimant and WPTC and dated the same day as the Lease (the Licence)

Miss Bhaloo asserts that the presence of the Works in the Premises after the break date results in the failure by the Defendant to yield up the Premises with vacant possession and that accordingly the notice purporting to exercise the break is ineffective.

In addition, she points out that a number of key fobs issued to WPCT at the commencement of the Lease and which give access to the Premises have not been returned by the Defendant and that the intruder alarm had not been deactivated by the break date. It is contended that both of these circumstances militate against the giving of vacant possession because they are inconsistent with the surrender of control over the Premises.

By these proceedings therefore the Claimant seeks a declaration that the demise has not come to an end and further it seeks an order that the Defendant, as successor to WPCT, complies with its continuing obligations under the Lease including the obligation to pay rent and other sums due under the lease, none of which have been paid by the Defendant since 29 September 2013. As at the date of the issue of the claim in March 2015 the amount that the Claimant contends was due from the Defendant was £111,766.50 but inevitably that has increased with the passage of time and, since the Lease expires in 2018, it continues to do so.

The Defendant contends that the presence of the Works does not mean that vacant possession has not been given. It contends that vacant possession was indeed given with the result that the Lease did terminate on 24 September 2013 and that accordingly, by virtue of the provisions of clause 6.10, its obligations under the Lease ceased from that date.

The basis of the defence is that the Works can properly be seen as tenant’s fixtures and fittings which either by operation of law and/or a proper construction of the Lease and Licence have been integrated into, or annexed to, the Premises and thus form part of the Premises. It is argued that there is a right but no obligation to remove tenant’s fixtures and fittings and that since the effectiveness of the break clause is dependent only upon the Defendant giving vacant possession of the Premises, if the Works form part of the Premises and there is no obligation to remove them then their presence cannot be an impediment to vacant possession of the Premises.

In order to determine the questions of construction regard has to be had, amongst other things, to the definition of Premises in the Lease and the tenant’s obligations set out in the Licence. With regard to the latter of particular relevance is clause 5.7 which deals with the tenant’s obligations at the determination of the tenancy to reinstate the Premises to the state and condition that it was in before the Works were carried out. Mr Pritchett argues that in any event there is no obligation to reinstate the premises to the condition that they were in at the commencement of the Lease (which it is accepted was as an open plan space) unless the Landlord requires it. Miss Bhaloo does not accept that in this instance, properly construed, that clause establishes that the obligation to reinstate only arises if the Claimant requires it.

In so far as any of the Works cannot be characterised as fixtures and fittings but are chattels then Mr Pritchett argues that their presence does not negate the fact of vacant possession because their presence does not substantially prevent or interfere with the enjoyment of the right to possession on the test enunciated in Cumberland Consolidated Holdings v Ireland (1946) KB 264 to which I shall come later. Furthermore, he argues that, in any event, the obligation to remove the Works would have arisen only if the Claimant had required them to be removed and the Premises reinstated pursuant to clause 5.7 of the Licence and 3.19.6 of the Lease and the Claimant had not done so.

The issues to be determined therefore are

Are the Works chattels (in which event they do not form part of the Premises) or are they tenant’s fixtures and fittings?

If the former then does their existence in the Premises as at the break date mean that, in law, vacant possession has not been given?

If the latter, was the tenant obligated to remove them notwithstanding that they are fixtures and fittings such that its failure to do so means that it has failed to give vacant possession?

It is not disputed by Mr Pritchett that it is settled law that conditions attaching to the exercise of an option must be precisely complied with (Footnote: ²) and that thus in this case whether it is fair or not, if vacant possession has not been given then the Lease has not been determined. However, whilst he accepts the need for strict compliance with any conditions if an option to break a lease is to be effective he contends that that does not mean that there is a requirement that vacant possession be given any stricter meaning in the context of a consideration of whether conditions attached to the exercise of a break clause have been complied with than would be relevant if vacant possession was being discussed in any other context.

It is as well to set out the provisions of both the Lease and the Licence that are pertinent to the issues of construction that must be decided if the Works are indeed fixtures and fittings or are otherwise additions and improvements to the Premises that causes them to become part of the Premises.

………………

“Premises” means the land described in the Particulars (Footnote: ³) which includes

(a)

the non -load bearing furnishings and coverings to:-

(i)

the main ceiling floors and walls of the Premises and

(ii)

any main columns in the Premises

but not any other part of those main ceilings floors walls or columns

(b)any internal non-load bearing walls inside the Premises and one half in width of any non-load bearing walls separating the Premises from any other premises in the Building let or intended to be let to any other tenant of the Landlord

(c)……..

(d)

any raised floors and suspended ceilings (and ceiling voids but excluding any plant machinery or Conduits therein save any exclusively serving the Premises) inside the Premises

(e)

all Conduits inside and exclusively serving the Premises

(f)

all additions and improvements to the Premises and all fixtures and fittings of every kind which are at any time in or on the Premises (whether originally fixed or fastened to them or not) except tenant’s or trade fixtures and fittings

(g)

all other structures and appurtenances at any time on or enjoyed with the Premises is far as they do not form part of the Building, Common Parts or the Estate Common Parts or do not form part of any other premises in the Building let or intended to be let to any other tenant of the Landlord

so far as they exist at any time during the Term

3.13

Yield up

At the expiration or sooner determination of the Term:-

3.13.1

quietly to yield up the Premises with vacant possession thereof decorated repaired cleaned and kept in accordance with the Tenant’s covenants

3.13.2

to deliver to the Landlord the original Lease and all other title deeds and documents relating to the Premises

3.13.3

………

3.13.4

………

3.19

Alterations

3.19.1

Not to make any structural alterations or additions to the Premises…

3.19.2

The Tenant shall be at liberty to make non-structural alterations or additions to the Premises including (without affecting the generality of the foregoing) alterantions to internal non structural partitioning and any consequential alterations or additions to the Conduits within and exclusively serving the Premises without the prior written consent of the Landlord Provided That details are provided to the Landlord by the Tenant as soon as practicable following such alteration or addition

3.19.3

Not to make or permit or suffer to be made any alteration or addition to any electrical installation in or on the Premises except in accordance with the terms and conditions laid down by the Institution of Electrical Engineers and the regulations of the relevant electricity supply authority and with the prior written consent of the Landlord……..

3.19.4

Before carrying out any permitted alterations or additions and at its own cost to:-

3.19.4.1 ….…

3.19.4.2 supply all drawings specifications and other information that the Landlord reasonably requires in respect of them

3.19.4.3 ……..

3.19.5

To complete and carry out any permitted alterations or additions:-

3.19.5.1 ….…

3.19.5.2 …….

3.19.5.3…….

3.19.5.4 ……..

3.19.5.5 …….

3.19.5.6 in accordance with the plans and specifications and details previously approved by the Landlord (when approval is required), and

3.19.5.7 in accordance for statutory local authority and insurers’ requirements

3.19.6

if the Landlord (acting reasonably) requires it to remove any alterations or additions to the Premises or any part of them (save for any floor boxes) and to reinstate the Premises or the appropriate part of them to their former condition before the end of the Term (however that occurs) with all work being done to the Landlord’s reasonable satisfaction

6.10

Break Clause

6.10.1

If the Tenant wishes to determine this Lease on the Break Date [ 24 September 2013] it may do so by giving at least six months’ prior written notice to the Landlord (time being of the essence) and on this Lease being determined under this sub-clause the rights and obligations of the parties shall cease but without prejudice to any claim by the Landlord or the Tenant in respect of any failure by the other to comply with its obligations up to that time Provided That any notice served by the Tenant shall only be effective to determine this Lease if the Tenant gives vacant possession of the Premises to the Landlord on or before the Break Date

6.10.2

…….

6.10.3

…….

The Licence

Definitions and Interpretation

“Works” means the alterations and works to the Premises described in the Schedule and shown on the Plans and Specifications (Footnote: ⁴)

4 LICENCE FOR ALTERATIONS

In consideration of the covenants on the part of the Tenant contained in this Licence the Landlord grants licence to the Tenant to carry out the Works in accordance with the provisions of this Licence

5.TENANT’S COVENANTS

The Tenant covenants with the Landlord as follows:-

5.1

Consents

Before commencing the Works:-

5.1.1

at the expense of the Tenant to obtain all necessary permissions consents and approvals for carrying out the Works under the Planning Acts and any other applicable statutes and of and from any competent authorities the Insurers and any other persons interested in the Premises and to deliver copies of the same to the Landlord

5.1.2

to obtain the acknowledgement in writing of the Landlord that any such permissions consents and approvals are acceptable to the Landlord (such acknowledgement not to be unreasonably withheld or delayed)

5.2

Notices

Promptly to give notice in writing to the Landlord of the commencement and completion of the Works and to pay within 14 days of written demand any additional premium payable in consequence of the Works or their execution and to comply with the requirements of the Insurers

5.3

Contractors

To procure that the Works are undertaken by reputable contracts previously approved in writing by the Landlord (such approval not to be unreasonably withheld or delayed)

5.4

Carrying out the Works

To carry out and complete the Works:-

5.4.1

in accordance with the permissions consents and approvals referred to in clause 5.1

5.4.2

in accordance with the Plans and Specifications

5.4.3

……

5.4.4

……

5.4.5.

……

5.4.6

to the reasonable satisfaction of the Landlord and its surveyor or architect who shall be given all necessary facilities for inspecting the progress of the works and the quality of the materials and workmanship used

5.4.7.

…..

5.4.8………

5.7

Reinstatement

If the Landlord reasonably requires at the end or sooner determination of the Term or as soon as the Licence granted by clause 4 shall cease to have effect to reinstate the Premises (save for any floor boxes) to the same state and condition as they were in before the execution of the Works such reinstatement to be carried out at the cost of the Tenant in a good and workmanlike manner with good quality materials to the reasonable satisfaction of the Landlord and its surveyor

6 AGREEMENTS AND DECLARATIONS

The parties to this Licence agree and declare as follows:

6.1

Conditionality

The licence granted by clause 4 is conditional on the Tenant complying with clause 5.1

6.2

Termination

If the Works have not been completed within the period specified in clause 5.4.8 or if there is a material breach of the Tenant’s covenants set out in clause 5 then the licence granted by clause 4 shall cease to have effect but without prejudice to any rights which the Landlord or the Tenant may have against each other.

The Specification provided, inter alia, as follows:

Partitioning

Partitions will be erected in accordance with the approved layout. These will be fixed to the structural slabs below the raised floor and above the suspended ceiling. They will be fixed to the perimeter walls but not to the curtain walling or glazing.

…

Alarms and Access Control

An intruder alarm will be installed for the demise. This will be a separate system from the Landlord’s system.

There is little in dispute as regards the lay evidence and nothing in dispute with regard to the expert evidence contained in the report of the single joint expert, Mr Simon Matley, a chartered surveyor.

Certain matters with regard to the obligations imposed on WPCT by the Licence are not in dispute. The Defendant does not dispute that WPCT did not;

Obtain any approvals for the Works from Insurers (as required by clause 5.1.1 of the Licence)

Give notice to the Claimant of the completion and commencement of the Works (as required by clause 5.2 of the Licence)

Procure the Claimant’s prior written approval of the contractors (as required by clause 5.3 of the Licence)

Comply with the specification relating to the instalment of the Partitioning (as required by 5.4.2 of the Licence)

Mr Henley is a director of the Claimant Company. He was able to confirm;

That the office accommodation of which the Premises form part was constructed on an open plan basis “as this tended to be the modern requirement for office based tenants” (Footnote: ⁵).

At paragraph 47 of his witness statement that “the state that the Defendant has left the Premises in made it quite impossible for the Claimant to take back its right of possession to substantial parts of the Premises ….. Possession of substantial parts of the Premises is prevented and interfered with by the items left behind by the Defendant.”

He enlarged upon this point in his oral evidence. He contended that the partitioning in particular has resulted in a unique configuration of the office space in the Premises which has resulted in a series of small offices. He described the effect as a rabbit warren. He was confident that nobody else would wish to adopt this format and that works would have to be undertaken to restore it to an open plan format before it was marketed. He confirmed however that he had not tested the market in order that that opinion could be empirically confirmed. Of course his position however is that the Premises are not free to be remarketed because the Lease is still extant.

That, as referred to in paragraph 8 above, WPCT installed its own alarm system but its presence, even if it was left armed by the Defendant when it vacated, did not hinder the Claimant because the Claimant had the wherewithal to turn it off since the company that maintained it for the Defendant was also employed by the Claimant.

The key fobs to which I also refer in paragraph 8 above were programmable so that those that were not handed back by the Defendant could be deactivated so that they could not be used to gain access either to the building or the Premises.

Both are employed by the Defendant, Mr Butterworth as a regional programme manager and Ms Blackburn as a principal property manager. Their evidence in so far as it relates to matters germane to the matters that I must determine centres around the alarm system and the key fobs. Of course in relation to the former, I have the evidence of Mr Henley that the alarm system did not really impede the Claimant’s occupation of the Premises after the Defendant’s departure and, in relation to the latter, I have his evidence that any uncollected key fobs could be deactivated so as to render them useless. Ms Blackburn confirmed that in fact the Defendant has paid business rates on the Premises since the date of purported vacation of the Premises but this has been by reason of an administrative error.

The single joint expert has been instructed simply to report on what items remain in the Premises and the manner in which they are attached or annexed to it. His unchallenged conclusions are as follows;

Partitioning

These are standard demountable metal stud partitions (and one folding partition) with painted plasterboard on either side and with fixed aluminium skirting. It is common ground that the partitioning has not been installed in accordance with the specification set out in the Licence in that they are not fixed to the structural slabs below the raised floor and above the suspended ceiling. Rather they are constructed “on top of the raised floor and extend to the underside of the suspended ceiling only”.

The expert opines (not challenged by the Defendant) that they will have been “fixed to the raised floor using screw fixings and will similarly be attached at the head of the partition to the suspended ceiling grid using similar fixings”.

He is clear that these partitions “do not extend from the structural slab to the structural soffit and are in no way fixed to the structure in these areas”

As regards the folding partition, this is suspended from a steel track fixed to the structural soffit of the building. In that respect therefore, since it is attached to the structure it does differ from the static non foldable partitions.

Kitchen

This consists of base units and wall units. The base units are free standing and support a laminate work top. There is a silicone seal between the back of the worktop and the perimeter wall of the Premises. One of the base units houses a sink which is connected to the water supply and there is a splash back cover affixed to the perimeter wall. The expert reports that the base units, being free standing are “easily removed”. The splash back is affixed to the perimeter wall with adhesive and the wall units are screw fixed to the perimeter wall.

Floor Coverings

The premises are carpet tiled in all areas other than the kitchen which has a vinyl floor covering. The carpet tiles are attached to the raised floor using a tackifier (Footnote: ⁶) but, says the expert, they can be lifted “relatively easily”.

The vinyl in the kitchen is clearly more bespoke and has been installed using a more permanent glue but it is likely that this glue has been laid on a self levelling screed that itself has been laid on a visqueen base which rests on the raised floor. According to the expert the effect is that “removal of the access floor and screed is much easier”. As I understand it, the visqueen base is a plastic sheet upon which the self levelling screed and the vinyl then rest these latter two items being connected to each other by the glue to which the expert refers.

Window Blinds

These are vertical slat blinds handing from an aluminium track which is screw fixed to the perimeter wall. The expert remarks that they can be “easily removed and made good when required”

Air Conditioning

I remind myself that there is actually no assertion in the Particulars of Claim that air conditioning units left on the Premises negate vacant possession. Nevertheless for completeness I record that the expert reports that the units and their control pads are affixed to the partitions installed by WPCT with the cabling enclosed within the partition wall and above the suspended ceiling. There are also cooling pipes concealed above the suspended ceiling taking coolant to the units. In addition there are swirl diffusers throughout the Premises.

Intruder Alarm

It is not clear to me precisely where the alarm is situated but there are passive infrared detectors (PIRs) in each room created by the partitions. These are fixed to the partitioning and are fed by cables running from above the suspended ceiling

Water stand Pipes

This is in the main meeting room and the expert believes that it will be fed from the kitchen facility by means of a flexible plastic pipe terminating in a copper or steel section. The expert reports it to be a free standing arrangement and he did not observe any pipework being affixed to the Premises.

Data Cabling

Data cables are present throughout the Premises beneath the raised access floor

Mechanical and Electrical (M and E) Installations

As well as electrical installations to serve the air conditioning system there have been alterations to M and E installations to lighting, light switching, smoke detection and ventilation to suit the tenant’s specific layout of the premises.

Pen Holder and Clock and 2 sets of two fire extinguishers

These are very minor items. The first two were affixed to a partition, the fire extinguishers (which are free standing) are simply at two separate points in the Premises as left by the Defendant.

I repeat that in fact in any event, the items referred to in paragraph 21.8 to 21.10 above are not pleaded by the Claimant as having negated vacant possession.

The first area of law to be engaged can itself be subdivided into 2 sub-categories namely the test to be applied in distinguishing chattels from fixtures and fittings and, secondly what is meant by “vacant possession”. The second area of law to be engaged in the event that the Works constitute tenant’s fixtures and fittings or otherwise form part of the Premises is that relating to the construction of documents. I have already referred above to how issues of construction may feed into this case.

In much earlier times there appeared to be a tendency to regard anything as attaching to the land as part of the land. In the second half of the nineteenth century the law started developing away from that premise.

Perhaps the modern starting point is Wood v Hewett an 1846 case which established the principle that

“when a chattel has been annexed by its owner to another’s freehold, but may, without injury to the freehold be severed, it is not necessarily to be inferred from the annexation that such chattel becomes the property of the freeholder. Whether in a particular case it has done so may be a question on the evidence and a jury may infer, from user or other circumstances, an agreement, when the chattel was annexed, that the original owner should have liberty to take it away again”

In Hellawell v Eastwood (1851) 6 EX 295 at 311 it was said:

“ … whether the machines when fixed were parcel of the freehold …. is a question of fact depending on the circumstances of each case and principally on two considerations: first, the mode of annexation to the soil or fabric of the house and the extent to which it is united to them, whether it can be easily removed, integre, salve et commode (Footnote: ⁷) or not without injury to itself or the fabric of the building; secondly on the object and purpose of the annexation, whether it was for the permanent and substantial improvement of the dwelling …. or merely for a temporary purpose, or the more complete enjoyment and use of it as a chattel”

In that case various machines were held to be chattels because they were;

“attached slightly, so as to be capable of removal without the least injury to the fabric of the building or to themselves and the object and purpose of the annexation was … to render the machines steadier and more capable of convenient use as chattels. They were never part of the freehold any more than a carpet would be which is attached to the floor by nails for the purpose of keeping it stretched out or curtains…… which have been slightly attached to the walls of the dwelling as furniture.”

In Berkley v Poulett (1976) 241 EG 911 Scarman LJ observed that

“Today so great are the technical skills of affixing and removing objects to and from land that the second test (in Hellawell) is more likely than the first to prove decisive”

The move away from considering an article to be part of the land simply because it was affixed to it gained further impetus from In re Sir Edward Hulse, Beattie vHulse (1905) CH 406. Buckley J held that chattels affixed to the soil by the tenant for the purposes of trade did not become part of the freehold and might be removed by the tenant

“The question has been argued whether the true principle is that where the tenant fixes chattels to the freehold with the right to remove them during his term, that right is an exception which enables him to remove part of the freehold, or an exception by which chattels do not become part of the freehold. It appears to me that the exception is an exception to the maxim “Quidquid plantatur solo solo cedit.” It is not that the law allows the tenant for years to remove part of the freehold, but that the chattels have not become part of the freehold. The exception makes them not part of the freehold”

In Spyer v Phillipson (1931) 2 Ch 183 it was held, on the facts of that case (which concerned valuable oak panelling and fireplaces installed in a flat by a tenant) that the court could not infer an intention on the part of the tenant that the fixtures and fittings should become part of the demised premises but that the proper inference to be drawn was that the tenant intended himself to enjoy them and not benefit the demised premises.

In that case the panelling was attached to the walls by screws but the installation of the fireplaces had necessitated some slight structural alterations. Having said that, Mr Pritchett would no doubt make the point that this case is considerably less relevant to the issue of whether an item is a chattel or a fixture than to the question of whether a fixture is a tenant’s fixture or a landlord’s fixture on the basis that in the former case the tenant has a right, but not an obligation, to remove it. In this case it is agreed that, in so far as the Works are fixtures, they are tenant’s fixtures.

In Legal & General Assurance Society Ltd v Expeditors International (UK) Ltd (2006) EWHC 1008 (Ch) Lewison J seemed to move away from the principles enunciated in Hulse. At paragraph 32 he said that

“a fixture installed by the tenant for the purpose of his trade becomes a part of the premises as soon as it is installed, although the tenant retains the right to sever the fixture on termination of the tenancy”.

However, the learned judge himself accepted the importance of the second test referred to in Hellawell and cited in Berkley when, in the same paragraph he observed that;

“whether something is a fixture depends on the degree and purpose of the annexation; in each case looked at objectively”

It is right to record that the editors of Woodfall appear to support Lewison J’s position that a tenant’s fixture does become part of the premises until severed. They consider that a better view than the one enunciated in Hulse (Footnote: ⁸). However, it is worth making the point that in my judgment that is less directed to the fundamental point about whether an item is a chattel or a fixture and more to the point about whether an item is a tenant’s fixture that a tenant has a right but not the obligation to remove. On the question of whether an item is a chattel or a fixture, Lewison J acknowledges that regard must be had to the purpose and degree of annexation, viewed objectively.

Woodfall and Hill and Redman also suggest that the intention of the parties as to the ownership of chattels fixed to the land is only material so far as such intention can be presumed from the degree and purpose of the annexation and so the intention must be objectively ascertained. Mr Pritchett reminds me that it is further suggested that whatever terms are agreed between the fixer of the chattel and the owner of the land does not affect the question of whether in law a chattel becomes a fixture. However, that is not to say that the parties cannot agree that a fixture may be removed by the non owner, it merely makes the point that if an item is in law a fixture then what the non owner removes by agreement is a fixture and not a chattel. (Footnote: ⁹)

It is right that both counsel rely to a greater or lesser extent on Expeditors. Mr Pritchett on the basis that it supports his contention that the Works left on the premises are not chattels but rather tenants fixtures which the Defendant has the right but not the obligation to remove at the end of the lease.

Miss Bhaloo does not accept that Expeditors takes the law back to pre Hellawell days because she argues that it is not authority for the proposition that a chattel becomes a fixture merely because it is installed on the land but in any event she relies on the fact that the case does point up the need for the court always to have regard to the question of what exactly must the tenant give vacant possession of? It is of course the Premises as defined. She points out that if, contrary to her primary argument that the Works are chattels, I find that they are fixtures then the Defendant had an obligation to remove them whether requested to or not because the definitions clause (paragraph (f)) in the Lease specifically excludes from the definition of Premises “tenant’s or trade fixtures and fittings”. The inevitable conclusion is that if the tenant is obligated to give vacant possession of the Premises then vacant possession is not given if the Premises contain tenant’s fixtures and fittings.

Woodfall paragraph 13.137 gives various examples of cases where the issue has been to establish whether a particular item is a chattel or a fixture. It is not clear what assistance is to be gained however from the outcome of these cases not least because even the editors of Woodfall concede that they cannot all be reconciled. Furthermore they make the important point that whether an article is a fixture is always a question of fact upon which the details of each case must be carefully considered with a view to discerning the object and purpose of the annexation.

I do observe however that my attention was drawn to the fact that Woodfall cites cases in which an alarm system has been held to be a fixture, as have kitchen units. On the other hand carpets (including fitted carpets) have been held to be chattels, as have shop fittings such as fixed counters and also fashion display gondolas notwithstanding that they were fixed to the wall be fixing plates that were themselves bolted to the wall.

The authors of “Dowding and Reynolds on Dilapidations: The Modern Law and Practice 2013-14” specifically considered the status of partitions. At paragraph 25-13 they say;

“partitions of whatever construction are virtually always fixed to the building in some way or other. It is thought that any substantial connection between the partition and the structure of the building is likely to lead to the conclusion that the partition has lost its chattel nature. For example, a stud wall which is constructed of plasterboard on wooden studs, the studs being fixed to the walls of the building and to the floor, would generally be either a fixture or an integral part of the demised premises. However, it may be that freestanding demountable partitions fixed only by brackets and screws would, in an appropriate case, be held to remain chattels.

In practice, something may turn on the extent to which a partition is realistically capable of being removed and used elsewhere. If it is, then, depending on the precise facts, it may be easier to conclude that it has not ceased to be a chattel. If, on the other hand, it is of such a nature that either it cannot be removed without destroying it, or if removing it would be effectively useless elsewhere, then it is very likely to be held to have lost its chattel nature.

In the New Zealand case of Short v Kirkpatrick 1982 2NZLR 358 partitions which had been solidly fixed to the concrete floor by means of ramset pins and nailed at the top to ceilings were held to be tenants fixtures”

Hill and Redman make the point that where, as here, items are physically attached to the land even slightly, the onus is on the party asserting that they are chattels rather than fixtures to establish that (Footnote: ¹⁰). That work also makes it clear that regard should be had to the purpose of the item whose status has to be considered and the purpose of the link between the item and the building and that it is also relevant to ascertain whether the item was intended to be permanent and afford a lasting improvement to the building and whether it is an essential feature of the land or whether it was fitted simply for the use and enjoyment of the chattel. Having said that, the editors of that work also accept that no test is definitive and it is a question of fact whether an article is a chattel or a fixture.

I have already mentioned the case of Cumberland Consolidated Holdings. That case enunciated two tests for vacant possession both identified and considered in Expeditors. The first was to ask whether the seller continues after completion to claim a right to use the premises for his own purposes. It does not strike me that the Claimant asserts that this applies in this case save in so far as it alleges that the fact that some key fobs were not returned and the alarm may not have been deactivated can be seen as demonstrating a right by the Defendant to use the Premises for its own purposes. Let me say that in this case I do not accept that because these key fobs are reprogrammable and access to the Premises can be terminated therefore at the press of a computer button but also because the evidence is that the fobs were not returned not because the Defendant was asserting a right to use the Premises but because it simply did not physically have in its possession all the fobs that had originally been issued. As for the alarm, I accept that if it was not deactivated that is more likely to have been an oversight than evidence of an intention to continue to exert some control over the Premises.

Of greater relevance in this case is the second test by which the question to be asked is whether the chattels left on premises by a seller deprive the purchaser of the physical enjoyment of the property? If they do then vacant possession has not been given.

Lord Greene MR in Cumberland said that the right to vacant possession comprises the right to actual unimpeded physical enjoyment of the property. He went on to point out that the physical impediment cannot be trivial

“it must be an impediment which substantially prevents or interferes with the right of possession of a substantial part of the property”.

At paragraph 42 of Expeditors Lewison J summarised the test postulated by Lord Greene MR as one that looks at the physical condition of the property from the perspective of the person to whom vacant possession has to be given. If that physical condition is such that there is a substantial impediment to his use of the property or a substantial part of it then vacant possession has not been given. He points out that Lord Greene had suggested that that will only occur in exceptional circumstances.

In NYK Logistics Ltd v Ibrend Estates (2011) EWCA Civ 683 at para 44 Rimer LJ defined vacant possession as meaning

“that 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 be empty of chattels, although the obligation is this respect is likely only to be breached if any chattels left on the property substantially prevent or interfere with the enjoyment of the right of possession of a substantial part of the property”

Mr Pritchett argues that that the Claimant has not established that the fact that the Works remained after the Defendant vacated has caused a substantial interference with the property or the Claimant’s enjoyment of it. He argues that the Claimant did not want the premises for its own purpose but simply to let and that there is no evidence that even the partitioning would interfere with that objective. Indeed he argues that it might even make the premises more attractive to potential tenants.

The law is now conveniently summarised in the speech of Lord Neuberger in the Supreme Court in Arnold v Britton 2015 AC 1619 from paragraph 14 at page 1627.

"When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to "what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean”, to quote Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd (2009) AC 1101 para 14. And it does so by focusing on the meaning of the relevant words………… in their documentary, factual and commercial context. That meaning has to be assessed in the light of (i) the natural and ordinary meaning of clause, (ii) any other provisions of the (document) (iii) the overall purpose of the clause and the (document), (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party's intentions”

The learned judge then went on to emphasise six specific factors of general application in this exercise of construction. I do not intend to set them out at length. The purport is that:

Commercial common sense should not be invoked to undervalue the importance of the language of the provision which is to be construed

The clearer the natural meaning the more difficult it is to justify a departure from that meaning.

Commercial common sense must not be invoked retrospectively. Common sense is only relevant to the extent of how matters would or could have been perceived by reasonable people in the position of the parties at the date the contract was made. The mere fact that a contractual arrangement if interpreted in accordance with its natural language has worked out badly, or even disastrously, for one of the parties is not a reason to depart from the natural meaning.

A court should be slow to reject the natural meaning of a contractual provision simply because it appears to be a very imprudent term for one of the parties to have agreed even ignoring the benefit of hindsight. Interpretation is to identify what the parties have agreed, not what the court thinks they should have agreed.

Only facts known to both parties or reasonably available to them both at the date of the contract can be taken into account as an aid to construction. It cannot be right to take into account a fact or circumstance known only to one of the parties

In situations where an event occurs which the parties clearly did not intend or contemplate judging from the language of the contract then the court should give effect to the intention that the parties would have intended if that is clear.

It seems to me that if the partitions (other then the folding partition which is attached to the structure (Footnote: ¹¹)) are chattels the presence of which substantially interferes with the Claimant’s enjoyment of the right to possession then it really matters not if other items that constitute the Works share the status of chattels or not. The fact (if it be a fact) that these partitions are there and are chattels rather than tenant’s fixtures, would, if they impede enjoyment of the premises by the Claimant, be enough to frustrate vacant possession. In any event it might be odd if something as substantial as partitions were held to be chattels and other less substantial articles comprised in the Works were held to be fixtures (although I recognise that the kitchen wall units are screwed to the perimeter wall and have a water supply and the folding partition is affixed to the structure).

I have carefully considered the tests for differentiating between chattels and fixtures and in my view, on the facts, these partitions are chattels rather than tenant’s fixtures.

I reach that conclusion not least because they are seen by the expert as being standard demountable partitions. It would be difficult to conclude that since they are held in place by screw fixings affixed to the raised floor and the suspended ceiling and “in no way fixed to the structure” that they cannot be removed without injury to themselves or the fabric of the building (to adopt the first test in Hellawell). They are clearly “slightly attached” to the Premises in the same way as the machines referred to in Hellawell and to which I refer in paragraph 26 and 27 above.

I recognise that on the authority of Berkley and indeed Expeditors (Footnote: ¹²) what is likely to be more decisive is the object and purpose of annexation. The unchallenged evidence of Mr Henley was that the configuration of the partitioning was unique. It resulted in a series of small offices that in his view is not what prospective tenants generally look for nowadays. I am persuaded that the object of that configuration, undertaken as it was by the Defendant as the tenant, was to benefit the tenant rather than affording a lasting improvement to the Premises. The very fact that the Defendant chose to erect demountable partitioning and not to affix the partitioning to the structure (as in fact, perhaps ironically, they were obliged by the Licence to do) suggests that it was seen by the Defendant as temporary.

I have regard to the consideration of partitions by the authors of Dowding and Reynolds to which I refer in paragraph 39 above. True it is that in this case we have metal stud partitions with painted plasterboard but we do not have partitions connected to the structure of the building but rather connected to non structural parts by means simply of screw fixings. Unlike, as was the case in the New Zealand case of Short v Kirkpatrick to which I refer in paragraph 39, these partitions are not solidly fixed to a concrete floor. Added to that they are described by the expert as “demountable”. The fact that they are described as such implies that realistically they can be demounted intact to be used elsewhere.

Spyer v Phillipson is of limited value because I agree with Mr Pritchett that that addresses more the question of whether an article is a landlord’s or tenant’s fixture rather than whether it is a chattel or a fixture but in that case wall panelling that broadly may be seen as not wholly un-analogous to partitioning was seen as evincing an intention by the tenant to benefit himself in his enjoyment of the property rather than as improving the property per se.

I do not think that a finding that this partitioning is a chattel is inconsistent with the observations of Lewison J in Expeditors. Mr Pritchett understandably relies heavily on paragraph 32 of the judgment and points out that the learned judge is an expert on this area of law but all the judge says is that a fixture becomes part of the premises as soon as it is installed. He clearly accepted that that observation did not throw light on the question of when something becomes a fixture. That is assessed by another test. It is not decided by whether it is installed on, or annexed to, the land but “the degree and purpose of the annexation”.

I do not overlook that there are electrical installations in the partitioning in the form of air conditioning units and electrical wiring and sockets. In my view their presence does not alter the status of the partitions. The electrical wiring runs within or on the outside of the partitions. Cooling pipes run within the suspended ceiling. The fact that utilities are connected to the partitions in this way does not in my view alter their status from chattels to fixtures essentially because they remain demountable without damage to themselves or the fabric of the Premises and the wiring etc does not endow them in my view with the air of permanence that Mr Pritchett contends. The whole point of raised floors and suspended ceilings is that services can be run through them and the course of those services altered as necessary without interfering with the structure of the building.

I share Miss Bhaloo’s view that a finding that the partitions are chattels is fatal to the defence unless I am satisfied that their presence at the termination of the lease does not frustrate vacant possession.

I should add however for completeness that the line of reasoning that leads me to conclude that these partitions are, in the circumstances of this case, chattels also leads me to conclude that that is the status of the other items that constitute the Works. I do not intend to dwell on these however because if these were the only items it is questionable whether their continued presence in the Premises would frustrate vacant possession. I merely confine myself to making a few comments about the kitchen units, the stand pipe and the alarm because in my view the window blinds and floor coverings are clearly chattels even though they are bespoke. It is difficult to see how any argument can be sensibly mounted that removal of carpets and the blinds could not be achieved without injury to them or the fabric of the Premises and /or that they were installed for the purpose of affording a lasting improvement to the Premises.

I do not overlook that at paragraph 38 above I note that in the past an alarm and kitchen units have been held to be fixtures but in each case it is a question of fact. The kitchen base units are free standing and are easily removed. The wall units are fixed only by screws to the perimeter wall. In both cases the degree of annexation is negligible. I am persuaded that these are chattels in much the same way that the shop fittings and display gondolas to which I also refer in paragraph 38 above were chattels. That conclusion in my view is not changed by the fact that the kitchen units are served by a water supply. That presumably emanates from pipe work under the raised floor. The expert makes it clear that the base units are easily removed, I believe that I am entitled to conclude from that that the water supply will therefore be capable of being capped without injury to the Premises. If it were otherwise it is difficult to see how the base units could be easily removed. As for the stand pipe in the meeting room, this too is seen by the expert as a free standing arrangement removable without difficulty.

As for the alarm, it is apparently a second alarm installed by the Defendant to supplement one actually installed by the Claimant. It is difficult to see such an alarm as affording a lasting improvement to the Premises. It seems to me to be an instalment for the specific convenience of the Defendant.

As already mentioned, Lewison J observed in Expeditors that a fundamental question that has to asked is vacant possession of what? As I have said, in this case it is the Premises. As I have also said, there are issues as to whether in fact the Works actually form part of the Premises. I deal here simply with the effect of the Works, and in particular the partitioning, on the Premises.

I am satisfied that the partitions are, to quote Lord Greene MR in Cumberland“an impediment which substantially prevents or interferes with the right of possession”. In addition, if one applies Lewison J’s interpretation of that test they “deprive the Claimant of the physical enjoyment of the Premises”. Equally I am satisfied on the test adopted by Rimer LJ in NYK that the existence of the partitions “substantially prevents or interferes with the enjoyment of the right of possession”

I do not accept that because there is no specific evidence that the Claimant cannot let the Premises to anybody else that it has failed to establish that its enjoyment of the Premises has been compromised. In addition, I do not accept that the Claimant’s enjoyment of the Premises is affected by the fact that it was never their intention to occupy it themselves but rather to let it. In this context in my view the Claimant’s enjoyment of the Premises encompasses having it in a condition in which it feels that it is a more attractive proposition to prospective lessees. Mr Henley’s unchallenged evidence on this which I set out from paragraph 19 above was clear that the configuration in which the Premises were left did not meet that criterion.

As I presaged in paragraph 59 above, the Defendant is in my view on stronger ground in asserting that the presence of the other Works does not frustrate vacant possession but in this context, the Defendant’s case is only as strong as its weakest link.

In all the circumstances I am satisfied that, on the assumption that the Works do not form part of the Premises, the Claimant has established that vacant possession was not given and that accordingly the break clause was ineffective.

It may be that such a conclusion is seen as harsh. After all, it essentially holds the Defendant responsible for ongoing substantial rent all for the sake of a failure to undertake a few thousand pounds worth of work. Lewison J makes the same point at paragraph 48 of Expeditors. But, as he points out at paragraph 30, “there is no room for general considerations of fairness or conduct” in the context of an assessment as to whether the conditions attached to the valid exercise of a break clause have been met.

My conclusion is premised on the basis that the Works are chattels that are not included in the demise. It is therefore appropriate briefly to consider what would be the outcome if my conclusion that that is so is wrong and that the Works are actually tenant’s fixtures or otherwise annexed to the Premises and thus part of the demise.

The Defendant argues that in that event there is no obligation on the Defendant to remove the items because they have been incorporated into the definition of Premises and so leaving them at the Premises cannot be a failure to give vacant possession. That can only occur if there is left on the Premises something that does not itself constitute part of the Premises. In any event it is argued that by virtue of clause 3.19.6 of the Lease and clause 5.7 of the Licence the Works need only be removed if the Claimant requires it.

Mr Pritchett argues that the Lease provides a very wide definition of Premises. It includes under sub clause (a) all non-load bearing furnishings and coverings and under sub clause (b) all internal load bearing walls. He makes the point that that cannot be confined to furnishings or coverings or non load bearing walls that existed only when the Lease was granted because, by virtue of the last phrase in the definition of Premises, the definition includes internal non load bearing walls “so far as they exist at any time during the Term”.

He also points out that under (f) “Premises” includes all additions and improvements to the Premises and all fixtures and fittings of every kind which are at any time in or on the Premises (whether originally fixed or fastened to them or not) but that is subject to the important proviso that the definition of Premises does not extend to tenants or trade fixtures and fittings. He argues that the kitchen for example is included within the definition of Premises as an “alteration or addition” and the partitions are caught within the definition either by sub clause (a) or (b)

Miss Bhaloo argues that internal non load bearing walls and partitions are clearly seen by the Lease as different things. She asserts that that is clear because the Lease refers to both. She points out that clause 3.19.2 refers specifically to partitioning in the context of alterations and the word “partitioning” is conspicuous by its absence in the definition of Premises.

I refer to the test for construction promulgated in Arnold v Britton to which I have referred in paragraphs 48 and 49 above. I do not need to repeat the test here. It is essentially necessary to ask what a reasonable person with the relevant background knowledge would understand the contract to mean adopting an objective rather than a subjective approach.

In the context of the factors which I set out in paragraph 49 above it is important in my view that other provisions in the Lease viz 3.19.2 refer specifically to partitioning whereas other points in the Lease refer to walls suggesting that walls and partitioning are indeed seen as different things.

It is also important that the Lease specifically excludes from the definition of Premises items that are tenant’s fixtures. It is accepted that in principle this partitioning, if it were not a chattel, would be a tenant’s fixture rather than a landlord’s fixture thereby entitling the tenant to remove it if it wished to do so, subject to any agreement to the contrary. It seems to me that there is commercial common sense in that. Why should a tenant not be entitled to remove and reuse partitioning that it itself has sourced and installed if that can be removed intact without undue difficulty and without damage to the structure of the building to which it is attached? I remind myself that commercial common sense is an aid to construction.

I am also exercised by the fact that clause 5.7 of the Licence, to which I shall come shortly, specifically provides that the Works (which of course include the partitioning) are removable in the circumstances set out therein. That is not consistent by any means with such partitioning forming part of the Premises. The test in Arnold v Britton includes having regard to the documentary and commercial context in which the Lease was signed and other provisions in documents executed in the same context.

Accordingly I am satisfied that the reasonable person identified by Lord Neuberger in Arnold v Britton if asked to consider whether the Lease incorporated the partitioning into the definition of Premises would conclude that it did not.

Even if I am wrong in that and the partitioning is an alteration or addition that has become part of the Premises then in my view that does not help the Defendant. Mr Pritchett argues that in so far as partitioning is an alteration or addition to the Premises, then, by virtue of 3.19.6 of the Lease, the Claimant has to request that it be removed and the Premises reinstated and it has failed to do so.

However Miss Bhaloo argues that clause 5.7 of the Licence specifically creates an obligation on the Defendant to reinstate the Premises to the condition that they were in prior to the Works being undertaken. She argues that that is not just dependant on the landlord requesting that, the obligation to reinstate also arises if the licence to carry out the Works ceases to have effect.

By clause 6.2 the licence to undertake the Works ceases to have effect if there is a material breach of the Tenant’s covenants contained in clause 5. She argues that the Licence has ceased to have effect because there has been a material breach and, on a proper construction of clause 5.7, the obligation to reinstate arises when the licence ceases to have effect whether the landlord requests reinstatement or not.

In this case she argues that the Licence has ceased to have effect pursuant to clause 6.2 because WPCT materially breached its covenants under the Licence. The details of its non-compliance are agreed and are set out in paragraph 18 above. I am satisfied that those examples of noncompliance are material. The purpose of them is to ensure that any alterations are approved by the Claimant and of good quality. Breach of an obligation designed to give the Claimant that comfort (and the comfort of knowing that its insurers are aware of the alterations) is in my view a material breach.

Let me now deal with the issue of whether the fact that there has been a failure to materially comply with the obligations created by the Licence in the terms summarised in paragraph 18 above means that the licence granted by clause 4 of the Licence ceased to have effect.

Mr Pritchett addresses this from paragraph 17 of his skeleton argument. Briefly he argues that the licence to carry out the Works was only conditional upon the provisions of clause 5.1 of the Licence and not upon the other obligations referred to in clause 5; they, he argues, are merely covenants and not conditions precedent to the grant of the Licence. He argues therefore that breach of these terms does not render the Works unlicensed or unauthorised.

However, in my judgment this ignores the fact that in fact one of the breaches constitutes a breach of clause 5.1 because it is clause 5.1 which requires that the Defendant obtain consents and approvals from the insurers. It failed to do so. Thus it seems that by Mr Pritchett’s own lights the Defendant has failed to satisfy the condition upon which consent to alter was premised. In any event, I do not accept that conditionality is dependent only on compliance with clause 5.1. In footnote 8 of his skeleton Mr Pritchett argues that the licence granted by clause 4 is conditional upon the tenant complying with clause 5.1 but that is not what clause 4 says. It says that the landlord’s licence is granted in consideration of (all) the covenants contained in the Licence.

Furthermore clause 6.2 is not ambiguous, the Licence ceases to have effect if there is a material breach of any of the covenants referred to in clause 5 – not just clause 5.1. In my judgment it is clear that in the circumstances, by reason of the material breaches, the Licence ceased to have effect. The right to start, carry out and/or complete the Works and use them thereafter was, in my view, conditional on the Defendant materially fulfilling all its obligations under the Licence. To put it another way, the validity of the licence was conditional upon compliance with the conditions upon which the Licence was given. If the conditions were not met then it is axiomatic that any permission ceased to have effect.

Even if the Licence has ceased to have effect Mr Pritchett argues that that is by no means fatal to his client’s position. He challenges Miss Bhaloo’s construction of clause 5.7. He suggests that it should be read on the basis that the obligation to remove and reinstate can only arise if the landlord actually requires it – even if the Licence has ceased to have effect. His interpretation of clause 5.7 is best demonstrated by breaking down the first 2 lines of the clause so that they should be considered in the flowing context;

Applying Arnold v Britton I simply do not accept that Lord Neuberger’s reasonable person would construe it in that way. In my view he/she is much more likely to construe this in the way suggested by Miss Bhaloo namely that the obligation to reinstate arises (a) if the landlord reasonably requests reinstatement at the end or sooner determination of the Term or (b) it arises automatically as soon as the Licence ceases to have effect. In other words, that the obligation to reinstate under (b) arises because the permission to alter ceases to have effect and not because the landlord has actively requested reinstatement. In my view the purpose of (a) is to give the landlord power (at its option) to have things revert to the pre alteration situation even if the alterations have accorded with every condition in the Licence. The purpose of (b) is clearly to ensure that where the alterations have failed to accord with the conditions attached to them then they should be removed and the Premises reinstated without further ado.

Miss Bhaloo’s construction accords with commercial common sense. It makes sense that the permission to alter automatically ceases to have effect and the need for reinstatement arises if the alterations have not been done in accordance with the terms upon which permission was granted. The short position is that the Works in the form in which they were undertaken are not approved. In that situation it makes sense that the Works should automatically be susceptible to removal.

On the other hand, it makes no sense that the obligation to remove works not undertaken in the manner authorised should only arise when the landlord requests removal. As here, there will be occasions where the Landlord does not know that the Works fail to accord with the terms upon which permission was given. In this case the fact that the partitions were affixed other than in the way stipulated by the Claimant was not known to the Claimant until the Premises were inspected by the expert. In short, the Works on the Premises are not approved Works, it makes commercial sense that there is an obligation to remove unapproved works even absent a request to do so by the Claimant.

I am conscious that it is wrong to attach too much weight to commercial common sense. I remind myself in particular of Lord Neuberger’s observations recorded in paragraph 49.1, 49.3 and 49.4 above. I have guarded against construing the meaning of clause 5.7 simply on the basis that the construction favoured by Mr Pritchett does not make commercial sense. With respect to him, in my view such an interpretation would also frustrate the overall purpose of the clause which is to ensure that only additions and alterations which are acceptable to the landlord as well as the tenant are constructed in the Premises.

Finally I would add that I see no tension between clause 3.19.6 of the Lease and clause 5.7 of the Licence that would result in the need to consider which has primacy. In my view, the one is not inconsistent with the other. Both require the removal of works by the tenant if requested by the landlord. The fact that the Licence imposes an extra obligation on the tenant to remove the works authorised by the Licence (i.e. the works with which I am concerned) in certain circumstances even if not requested does not render the two clauses irreconcilable in a way that would justify reliance on the terms of the Lease to the exclusion of the terms of the Licence.

In all the circumstances, even if I had found that the Works and particularly the partitions were not chattels but fixtures or otherwise formed part of the Premises, I would have found that there was an obligation to remove them arising out of the fact that the licence to erect them had ceased to have effect and that their presence in the Premises on the date of purported termination of the Lease meant that vacant possession of the Premises was not given.