The term “vacant possession” is used almost every day of the week by real estate professionals. Most properties are sold “with vacant possession”. The form of contract provided by the Law Society incorporating the Standard Conditions of Sale (Fifth Edition) contains a provision indicating that the property is either sold with vacant possession or subject to a specified tenancy.
You are likely to find that the contract for the sale of commercial property incorporates the Standard Commercial Property Conditions (Second Edition) and specifies, again, that the property is sold “with vacant possession” or subject to a specific lease. It is generally accepted that a seller contracts to sell with vacant possession where the contract does not provide to the contrary. When a tenant takes a lease of the property he expects the landlord to provide him with vacant possession and the landlord expects the property to be returned to him with vacant possession.
However what is vacant possession?
The NYK Logistics case
In NYK Logistics (UK) Limited v Ibrend Estates BV, decided in March 2011 by the Court of Appeal, NYK was the tenant of a warehouse premises and Ibrend was the landlord. NYK served notice to determine its lease at the break date of 3 April 2009. It was a condition of the break that vacant possession was provided by NYK by the break date. In the days leading up to that date NYK was undertaking repair work in the property which it realised it would not be able to complete before the end of the break date. NYK tried to contact the landlord to seek permission to complete its work after the break date but did not hear from the landlord in response. On that day, a Friday, no agreement between landlord and tenant had been agreed as to any future use of the use of the property. Over the weekend NYK maintained its security at the property and on the following Monday NYK’s contractors entered the warehouse to carry out the remaining repairs. Two days later the landlord’s solicitors wrote to NYK advising them that they had not complied with their obligation to give vacant possession on 3 April 2009 and accordingly the lease had not been effectively determined and would continue.
NYK’s lawyer, before the court of appeal, tried to argue that NYK was ready, willing and able to give vacant possession of the property to the landlord and the landlord had not been inconvenienced by the use of the property to finish off the repair work.
The court concluded that NYK had not delivered up vacant possession of the warehouse in time. NYK’s suggestion that at the request of the landlord NYK would have downed tools and left the warehouse the moment that request had been made so that NYK’s occupation was not inconsistent with the landlord’s right to vacant possession was not, the court said, a correct statement of principle.
The example given by the court was that NYK’s argument would mean that a seller who continued, without the purchaser’s consent, to occupy the sold premises after completion until such later date as he knew the purchaser would actually seek to occupy it himself, at which point he would depart, would have given vacant possession on completion.
That, the court indicated, would be regarded by the purchaser as obviously wrong and the court took that view as well.
For the sake of a few days of tidying up NYK failed to comply with a conditional break requirement with the result that the lease continued.
So what is the test for vacant possession?
There are two possible tests for deciding whether or not vacant possession has been given:
- The first test looks at the activities of the person who is required to give vacant possession. If he is actually using a property for purposes of his own otherwise than to an immaterial extent he will be held not to have given vacant possession. So a house seller who continues to keep his furniture in the house or a commercial seller who continues to use the property will not have given vacant possession.
- The second test looks at the physical condition of the property from the perspective of the person to whom vacant possession must be given. If that physical condition is such that there is a substantial impediment to his use of the property or substantial part of it then vacant possession will not have been given. So if the seller leaves rubbish in the property including many sacks of hardened cement then he will not have given vacant possession.
How do you give vacant possession?
If you seek to provide vacant possession then you must ensure that you pass the two fold test mentioned above and in particular:
- You must leave the property and ensure that your family/employees leave and, indeed, anyone else - such as trespassers.
- Take all your goods with you. Do not leave tables and chairs, pallets, rubbish, concrete – leave nothing.
- Stop providing security for the property – it is not your responsibility any more.
- Give the keys to the one entitled to vacant possession.