In a transaction for an interest in an estate of land, it is usual for the transferor (the seller) to contract to give ‘vacant possession’ to the transferee (the buyer) upon completion. But what does this actually mean?
It means the seller is contracting to leave the property empty on the day of completion. This may seem straightforward, but how hard is it to leave a property empty? Does it mean just removing yourself as well as your belongings, or does it mean removal of everything down to the last dust particle? Really, vacant possession means leaving the property in a state so the buyer can both physically and legally occupy it. It is worth noting that each case is different and what constitutes vacant possession may differ in particular circumstances.
As a guidance there are two principles to follow in order to give vacant possession as set out in the Court of Appeal Case of Cumberland Consolidated Holdings:
- The seller cannot leave his own property in the premises – this is because he is technically claiming a right to use the property for his own purpose.
- Any impediment which substantially restricts or interferes with the enjoyment of right of possession – this can mean leaving the property in such a state that it cannot be used for what it was sold for.
So, where is the issue? So far what I have said is merely informative, but when it comes to a commercial tenant exercising a break in a break clause, there might be unfavourable consequences for the tenant. For example, in some lease agreements a tenant may be able to exercise a break clause by giving vacant possession of the property. If on the break date they have not given vacant possession, then the lease maybe held to continue, and the break notice invalid. You must comply with the requirements expressed in the break clause for it to be effective including giving vacant possession.
Case law demonstrates how tenants leaving belongings behind (belongings that are considered ‘theirs’) means that vacant possession is not fulfilled. Riverside Park Limited v NHS Property Services Limited was a case when a tenant did not remove chattels from the property namely demountable partitioning, a unique configuration where it was held that they impeded the landlord’s use of the property. Bizarrely the case of Capitol Park Leeds plc v Global Radio Services Limited [2020] EWHC 2750 (Ch) demonstrates that taking too much out of the landlords property on vacation, namely removing the landlords fixtures and fittings, prevented vacant possession from being effected (although the tenant was in breach of contract as well, the point remains the same).
The standard dictated by the court’s interpretation of vacant possession might be an inconvenient obstacle for a commercial tenant in such a scenario where they want to exercise a break in the lease. A scenario might be a failing business and the break date has arrived just in time, the tenant exercises the break only for the landlord to turn around and say the tenant hasn’t given vacant possession.
Alas, this problem may not have arisen if in the break clause there was a requirement for ‘vacant occupation’ not ‘vacant possession’. Vacant occupation surely is an easier standard to achieve. Leaving no sign of occupation could be easier than having to give vacant possession.
This demonstrates how the courts have interpreted vacant possession as dependant on the circumstances, but there could be less room for this interpretation if the clause stated ‘vacant occupation’ instead.
If you would like to find out more, or if you are concerned you may not be able to easily leave vacant possession to exercise a break in your lease, please get in touch with Allan Janes on 01494 521301.