"Vacant possession" means:
- No people should be present on the premises
- The buyer, tenant or landlord (as the case may be) must be able to assume immediate and exclusive possession, occupation and control
- The property must also be empty of chattels, although this obligation is only likely to be breached if any goods left substantially prevent or interfere with the right to possession of a substantial part of the property
Why the question of vacant possession is important
Property documents often impose a requirement that one party must provide "vacant possession". This might be in the context of a sale, or a yielding-up clause in a lease. It is also commonly a condition of a break clause that the tenant must give vacant possession.
The parties in NYK Logistics (UK) Ltd v Ibrend Estates BV had entered into a lease which contained such a break clause. The tenant served a valid notice to break its lease on Friday 3 April 2009. On 1 April the surveyors acting for the landlord and the tenant met to agree a terminal dilapidations schedule. It was recognised that it would not be possible to complete all the works before the break date, two days later.
The tenant therefore suggested that it should be allowed a further week to complete the works. It offered to continue to pay for security guards at the premises (which were in an area liable to vandalism) for the additional week, although said that it would not pay rent or rates. The tenant offered to hand back the keys so that the landlord could have access. The landlord did not reply to this offer before the break date. The following Monday, the tenant's contractors entered the property in order to carry out the necessary repairs, which took four days to complete.
The landlord alleged that the lease had not been effectively terminated, because the tenant had not complied with the obligation to give vacant possession.
Decision in NYK Logistics (UK) Ltd v Ibrend Estates BV
The Court of Appeal ruled that, at the moment that vacant possession is required to be given, the property must be empty of people. The landlord must be able to assume and enjoy immediate and exclusive possession, occupation and control of the property. The premises must also be empty of chattels, although the court thought that this obligation was only likely to be breached if any items left in the property substantially prevent or interfere with the landlord's enjoyment of the right of possession of a substantial part of the property.
In the present case, the tenant had continued to use the premises for its own purposes after the break date - to complete repairs that were in its interests (so as to avoid the prospect of a subsequent claim for damages in excess of its own cost of doing them). Its misfortune was that it could not obtain a response from the landlord to what the court described as a "sensible proposal".
The tenant knew that it needed to obtain the landlord's agreement to what it wanted to do (and indeed tried to obtain this). However, when that agreement was not forthcoming by the break date, the safe course would have been for the tenant to move everyone out of the property (including the security guard) and deliver the keys to the agents. It could then have contacted the landlord the following Monday to ask whether it would be permitted to return to the property as a licensee in order to complete the outstanding works. It was not a condition of the break that the works be carried out in order for the lease to come to an end on the break date.
On that basis the court found that vacant possession had not been given and the break had not been effectively operated.
Things to consider
The Code for Leasing Business Premises recognises the difficulties that the term "vacant possession" can cause in the context of break clauses. The Code recommends that the only conditions which should apply to the exercise of a break right are that the tenant (i) is up to date with the main rent, (ii) gives up occupation and (iii) leaves behind no continuing subleases.
However, the Code also recommends that landlords should serve schedules of dilapidations at least six months before the termination date. Where termination is triggered by the exercise of a break clause, clearly this may be harder to comply with.
Following Ibrend, advice to those under an obligation to provide vacant possession must continue to be to ensure that all personnel have left the site. The position in relation to chattels is less straightforward, but it appears that whether the presence of items in the property will prevent vacant possession being given is a question of degree.