Vacant possession means providing the purchaser with title to property free from any tenancy or physical impediment that may interfere with the purchaser’s enjoyment of the property. It is standard practice for every contract in property transactions to require the seller to provide vacant possession on settlement. This entails making the property available at an agreed time (the settlement date) and in an acceptable vacant condition. It often arises as an issue when a buyer intends to use a property as a home, and it is an obligation that sellers should carefully consider.
Application of Vacant Possession
A Contract of Sale of Land includes two options that impact the possession provided to the purchaser on settlement:
- Vacant possession, or
- Subject to existing tenancy.
If neither option is stipulated, the presumption is that the buyer will obtain vacant possession on settlement. These terms are relevant in residential transactions and commercial lease and sale transactions.
What steps must be taken to give Vacant Possession?
First, the seller must move all goods not included in the sale from the property before settlement. This means removing anything which would interfere with the purchaser’s contractual right to immediate ‘unimpeded physical enjoyment’ of the property. The seller must take all chattels, moveable objects such as furniture, rubbish and ornaments, off the property. Second, the seller must ensure no one else has a right to occupy or possess the property by the settlement date.
Often, the seller is also contractually obliged to leave the premises in a reasonably clean condition. This involves maintaining the condition of premises between exchange of contracts and settlement.
Key Considerations for Sellers
Sellers should consider if there are any tenancies on or over the property which could impact their ability to provide vacant possession to the buyer. If there is a tenancy, consider the following questions:
- What is the term of the tenancy?
- What is the end date for the tenancy?
- Do I need a right to extend the settlement date to allow time to provide vacant possession?
Key Considerations for Buyers
Buyers may want to organise a pre-settlement inspection of the property to ensure there are no tenants in the property with no intention to vacate and to see the state of the property.
Even where personal items and rubbish are left on the property, the seller may still meet their contractual obligation to give vacant possession. This was the case in Nelson v Bellamy (2000) NSWSC 182 where significant rubbish had been left behind, including wooden brick pallets, concrete bricks and broken concrete blocks. Despite the number of items left behind and the costs of removal, the Supreme Court of NSW decided there was no ‘substantial impairment’ to the buyer’s enjoyment of the property. This meant the buyer was not entitled to terminate the contract for failure to give vacant possession.
A buyer can include conditions in the contract which address the issue of the seller leaving the premises in an undesirable state. A condition requiring the seller to remove any rubbish or personal items, if not met, can entitle the buyer to delay settlement or receive a deduction from the balance purchase price at settlement.
Failure to Give Vacant Possession
For commercial leasing, failure to give vacant possession means the lease will not terminate and the tenant will remain bound. If the previous tenant business fails to give vacant possession, the new lessee will receive a right to compensation for lost time and opportunity.
In commercial and residential sales, the buyer’s main remedy for the seller’s failure to provide vacant possession at settlement is damages and specific performance. However, seeking redress by court proceedings is difficult, time-consuming and expensive. It is therefore important to have a well-drafted contract that addresses issues associated with vacant possession.
A vacant possession clause in a property contract should not be overlooked. It is imperative that buyers understand what it means and for sellers to be aware of the consequences following failure to give vacant possession.
If you need assistance with a property transaction or any other commercial law issue, contact our team of commercial property lawyers via the form on this page or by calling 1300 337 997.