Out-Law Guide | 04 Aug 2011 | 10:28 am | 4 min. read
The obligation to provide vacant possession is the legal commitment to ensure that, when a contract for sale is completed or a lease is terminated, property is fit for occupation both physically and legally.
Vacant possession is an essential element of any land transaction where the right to occupy property is being granted to a third party. It is particularly relevant to land sales; the grant, termination or transfer of a lease and, in some cases, to licenses to occupy. Vacant possession will normally appear as a specific term in a land agreement, but it may also be implied by law.
The most common impediment to vacant possession is when the previous occupier has left certain items on the property. For more information, please see our separate OUT-LAW Guide to Tenant's goods left at premises. In some cases, the previous occupier may remain in the property once the lease has terminated or sale contract completed, either because they have a contractual or statutory right to do so or because they may be trespassing. A third and more unusual obstacle to vacant possession concerns legal impediments, which are often overlooked.
In case law, legal impediments have often acted as barriers to vacant possession. Sellers must make sure not only that premises are empty and ready to use but that there are no outstanding legal claims to land or property.
One group of cases concerned the government's power to requisition land it deemed in the national interest around the time of the Second World War. In each case, the court had to decide to what extent a requisitioning notice would prevent the seller from delivering vacant possession when the contract was completed. Similarly where a compulsory purchase order is made on a property after the contracts have been exchanged but before the sale is completed, the question arises as to whether the buyer can obtain legal possession. In a case between Hillingdon Estates Company and Stonefield Estates in 1952, the court held that a compulsory purchase order did not affect the purchaser's obligation to complete the purchase.
Legal barriers to vacant possession can take other forms. For example, in a 1978 case between Topfell Ltd and Galley Properties, a two-storey property with an existing first-floor tenancy was sold with 'vacant possession of the ground floor'. However, as a notice granted under the relevant Housing Acts limited occupation of the entire property to one household this prevented the seller from giving vacant possession.
In a case in 2000 the seller, Baylis, was trying to sell land that was dedicated as a public highway. The highway authority, rather than the owner of the land itself, was held to have a right to possession which caused the seller to be unable to give vacant possession.
In 2008, a Mr Weir contracted to buy some freehold property. The Land Register included an entry relating to a nine-year lease of the property which had been granted in 2004 - although the tenant had apparently surrendered the lease in 2006, notice of it had not been removed from the register. In the sale contract the seller, Area Estates Ltd, expressly granted vacant possession and other terms states that the lease, although still included on the register, had already been dealt with legally and that the buyer would 'accept the position' and not need 'any further proof of the determination'.
However, at the time the lease had allegedly been surrendered, the tenant had just been presented with a bankruptcy petition and was ultimately declared bankrupt. Insolvency law voids any 'disposition of property' by a bankrupt which happens during the period between when the petition is presented at court and the date when that person's estate passes to the trustee in bankruptcy. The court accepted that the surrender of the lease was a 'disposition of property' which was therefore void under the relevant law. Area Estates Ltd had contracted to sell with vacant possession, but it could not do so until the lease had been validly surrendered or disclaimed by the tenant's trustee.
Since this had not happened, the lease still existed on the date the contract was completed and Area Estates was in breach of its obligation to give vacant possession. Accordingly the court allowed Mr Weir to cancel the contract and dismissed the seller's counter-claim for damages, given that it later sold the property to a third party for a lower price than Mr Weir had agreed to pay before he had discovered the lease was still valid.
The Weir case demonstrates that an obligation to give vacant possession involves more than simply ensuring that the previous occupier has removed its goods and left the property. The property must also be free from other legal claims. As the case illustrated, where a tenant has vacated property but its lease has not yet been formally terminated the seller will be in breach of its obligation to give vacant possession because a legal impediment still exists.
Where the tenant is insolvent, there will normally be doubts as to whether it has the capacity to personally complete the surrender of the lease. Further inquiries and investigations should be made before accepting an alleged surrender, especially one made by operation of law rather than any action on behalf of the tenant. Once the lease is validly terminated, it should be removed from the Land Register as soon as is reasonably possible.
More generally, the Weir case illustrates the importance of conducting normal searches and enquiries. Even where the transaction involves the surrender of a short-term lease or where a tenant has already vacated the property, it is sensible to investigate any title deeds to ensure that the relevant entry has been removed from the Land Register.
Any lurking legal claims could present a barrier to vacant possession on completion of a contract. Parties should not fall into the trap of assuming that vacant possession is simply about moving out all physical things and people by that date.