‘The property shall be sold with vacant possession on completion’ is one of the most commonly used terms in commercial property contracts and often is misunderstood.
As a buyer, it can mean the difference between acquiring a usable asset and inheriting unexpected legal problems. For sellers, misunderstanding vacant possession obligations can lead to delayed completions, disputes and even failed transactions.
So, What does Vacant Possession Mean?
Simply, it means the property is physically empty of people and belongings. There are no occupation rights remaining and the buyer will have exclusive possession and control.
Using the above definition, we can see that a property only being free from tenants isn’t enough. Any and all occupiers must have vacated. This includes sub-tenants and licensees as well as any other informal occupiers. Moreover, vacant possession also means any goods (unless otherwise agreed) must be removed.
If it has been agreed that items are to remain, such as office furniture, then a list of these contents should be prepared with reference to the list being made in the contract. This is to avoid unnecessary surprises on completion.
Why Vacant Possession is Important
Without vacant possession, a buyer would not be able to start trading, or, carry out works to a property. There could also be funding implications if a lender is involved. Even tenants who may have agreed to leave at the outset, but later do not, can cause delays.
Where funding is being sought for development purposes, lenders generally expect there to be vacant possession, so that works can commence straightaway. However, with unexpected occupiers, loan drawdowns can be delayed until vacant possession is obtained.
With tenants protected under the Landlord and Tenant Act 1954, it may not be enough that the lease is coming to an end, and a seller expects they can provide vacant possession. Protected tenants can remain in the property until a landlord serves a notice requiring them to vacate. Even then, the scenarios in which the landlord can request this are restricted by legislation. So, early planning is essential. Commercial property solicitors can help advise on the termination of occupational interests.
Break Clauses and Vacant Possession
Where break clauses are to be included in a lease, typically, a condition of the break is that the tenant will provide vacant possession on the break date, or, as is more common nowadays, a requirement the tenant gives up occupation and leaves behind no continuing subleases.
Issues can also arise with any yield up/reinstatement provisions in the lease and clearly identifying what is required by the tenant before they vacate. There has been a lot of case law in this area, so again it is important to seek early advice and wherever possible, ensure the lease itself is clear on the reinstatement requirements. In Riverside Park Ltd v NHS Property Services Ltd [2016] EWHC 1313 (Ch), a tenant left behind demountable partitioning which they installed and so the High Court held vacant possession hadn’t been provided and therefore the break wasn’t effective, as the partitioning should have been removed.
Important Conclusions
If you are buying or selling commercial property and vacant possession is required, do not assume it is automatic. Start making arrangements as soon as possible and not the week of completion to identify any possible issues. Moreover, do not rely on informal assurances. As a buyer physical inspections are also important and I advise these are carried out prior to exchange of contracts and completion. Vacant possession is a contract condition, not just a simple phrase, and a breach of this provision could be very costly to remedy.