Despite the importance of the term vacant possession to both property owners and tenants, the term is not defined in legislation, nor is there a clear Irish authority confirming what is meant by vacant possession. We consider what vacant possession means and its relevance to owners and tenants of commercial real estate.
Vacant possession is a term to describe the usual basis on which a seller must deliver a property to a buyer on completion or a tenant must deliver to a landlord at lease expiry.
Failure to deliver vacant possession has different implications for a seller or tenant dependent on the circumstances. To avoid potential breaches of contract or of lease covenant, sellers and tenants should be fully aware of the terms of any contractual commitment to deliver vacant possession.
Vacant possession is generally of relevance in the following circumstances:
- When a property is being sold, as the general conditions of sale state that a purchaser is entitled to vacant possession on completion
- Yield up obligations in leases generally place an obligation on the tenant to deliver vacant possession on term expiry
- Break clauses in leases are often conditional on the delivery of vacant possession by the tenant on or before the break option date
What is vacant possession?
The term vacant possession is not defined in legislation, nor is there a clear Irish authority on what vacant possession means. There have been a number of cases in the UK where the meaning of vacant possession has been discussed. Simply put, vacant possession means that the relevant person, whether that is a purchaser or landlord, is in a position to enjoy the property undisturbed.
If a seller or tenant continues to use the property in a manner that is inconsistent with vacant possession or if there is an impediment, physical or otherwise, to enjoying the property, vacant possession may not have been delivered.
The UK courts have held that vacant possession was not provided in the following circumstances:
- A tenant’s workmen remained on the property after a break date to attend to repairs. This was notwithstanding that the tenant had sought permission, albeit without response, to completing the work after the break date.
- Removable partitioning was left behind on the property after a break date. It was held that partitioning deprived the landlord of physical enjoyment of the property.
- Where a local authority had served notice to enter the property under a compulsory acquisition. This was held to be a legal obstacle to vacant possession in the context of a sale.
Potential implications of not providing vacant possession
Failure to deliver vacant possession when a party is obliged to do so can result in serious consequences. When delivery of vacant possession is a condition to the exercise of a break option in a lease, failure to deliver same can have far reaching implications. If vacant possession is not provided, the break may not be effective and the tenant may have continuing obligations under the lease until lease expiry or earlier termination. On a sale of a property, failure to provide vacant possession could leave the vendor open to a purchaser seeking specific performance, damages, or recission of the contract.
If a property owner or tenant is obliged to provide vacant possession, steps should be taken and advices obtained, if necessary, at an early stage in a transaction. Careful consideration should be given to the obligation to provide vacant possession in order to avoid additional costs and potential litigation.