Real Estate Update: Vacant Possession

Despite the importance of the term ‘vacant possession’, the term is not defined in legislation, nor is there a clear Irish authority confirming what is meant by vacant possession. Real Estate partner, Oliver FitzGerald considers what vacant possession means and its relevance to owners and tenants of commercial real estate.

What does vacant possession mean?

Vacant possession is a term used to describe the typical basis on which a seller must deliver a property to a buyer on completion, or a tenant must deliver to a landlord on lease expiry. Although there is no clear Irish authority on the definition of the term, there have been several cases in the UK where the meaning of vacant possession has been discussed.

Simply put, vacant possession means that the person entitled to the property, like a buyer or landlord on lease expiry, is free to enjoy the property undisturbed. In general, this means that the property should be free of occupiers, items and third party interests.

When is vacant possession relevant?

Vacant possession is generally of relevance in the following circumstances:

1. When a property is being sold, as the general conditions of sale state that a buyer is entitled to vacant possession on completion. This scenario is typically referred to as “sold with vacant possession”.
2. On the expiry or termination of a lease. Yield up obligations in leases generally place an obligation on the tenant to deliver vacant possession to the landlord on expiry, and
3. On the exercise of a tenant break option. Break clauses in leases are often conditional upon the delivery of vacant possession by the tenant to the landlord, on or before the break date.

A seller or tenant may be unable to deliver vacant possession if:

• A seller or tenant continues to use the property in a manner that is inconsistent with the concept of vacant possession, or
• There is an impediment, physical or otherwise, to enjoying the property.

The following are some interesting circumstances that UK courts have considered in the context of vacant possession:

People

After exercising a break option, workmen hired by a tenant remained on the property after the break date to attend to repairs to the property. The court held that the tenant failed to deliver vacant possession. This was notwithstanding the fact the tenant had sought permission from the landlord, albeit without response, to completing the work after the break date.[1]

Items

• Removable partitioning installed by a tenant during its lease was left behind on the property after the break date. It was held by the court that this deprived the landlord of physical enjoyment of the property.[2]
• A tenant stripped the property of landlord fixtures and fittings. This resulted in the property being left in a poor condition. In the first instance, the court held that the property was ‘unoccupiable’ and vacant possession had not been given. On appeal, this decision was overturned. The Court of Appeal held that the obligation to deliver vacant possession referred to returning the property free of items, people and third party interests, not to its physical condition. In the particular circumstances, it was held that the tenant had delivered vacant possession.[3]

Third party interests

• Where a local authority had served notice to enter the property in sale under a compulsory purchase order, it was held to be a legal obstacle to vacant possession in the context of a sale.[4]

While decisions reached by UK courts may be considered persuasive authority by Irish courts, it is not necessarily the case that UK case law will be followed in similar proceedings before Irish courts. As such, the cases discussed above should not be interpreted as representing the law on vacant possession as it currently stands in Ireland.

Potential implications of not providing vacant possession

Failure to deliver vacant possession when a party is obliged to do so can result in serious consequences. If delivery of vacant possession is a condition to the exercise of a break option in a lease, failure to deliver same could mean that the exercise of the break is ineffective. The tenant may have continuing obligations under the lease until expiry or earlier termination. On the sale of a property, failure to provide vacant possession could leave the seller open to a buyer seeking specific performance, damages, or recission of the contract for sale. To avoid potential breaches of contract or terms of lease, sellers and tenants should be fully aware of the implications of a contractual commitment to deliver vacant possession.

Conclusion

If a property owner or tenant is obliged to provide vacant possession, steps should be taken and advice obtained, if necessary, at an early stage in a transaction. Careful consideration should be given to the obligation to provide vacant possession to avoid additional costs and potential litigation.

For more information, please contact a member of our Real Estate team.

People also asked

[1] NYK Logistics (UK) Limited v Ibrend Estates BV [2011]

[2] Riverside Park Limited v NHS Property Services Limited [2016]

[3] Capital Park Leeds plc & anor v Global Radio Services Ltd [2021]

[4] Korogluyan v Matheou [1975]