The importance of vacant possession in property transactions

Vacant possession is an important point to consider when developing land, acquiring it or when letting it out.

When a developer embarks on a new development he must be sure that he will obtain vacant possession, and if such an important point is not addressed at an early stage this could have serious implications for the intended development.

A new scheme for development may be made up of many parcels of land some of which are vacant and others subject to lease or licences.  It is important that the developer assesses whether vacant possession can be obtained and what is involved.   So what is vacant possession?  In a property sale contract the seller is obligated to make the property available on completion in a state in which the buyer can physically and legally occupy it and give the buyer undisturbed enjoyment of the property. 

The case of Cumberland Consolidated Holdings Ltd v Ireland [1946] KB 264 formulated the test for vacant possession. In this case it was held that a vendor who left chattels on the property sold by him to an extent depriving the purchaser of the physical enjoyment of part of the property had in fact failed to give vacant possession. It was also no answer for the vendor to have abandoned his ownership of the chattels on completion.  The buyer was therefore entitled to damages for breach of this implied condition of the sale contract. This important case set out the test of what constitutes vacant possession in the context of a sale of a land.   Subject to the rule of de minimis a vendor who leaves property of his own on the premises cannot be said to give vacant possession since by doing so he is claiming a right to use the premises for his own purposes, namely as a place of deposit for his own goods inconsistent with the right which the purchaser has on completion to undisturbed enjoyment.

In the context of business tenancies where a tenant is in occupation of the site under a business tenancy protected under the Landlord and Tenant Act 1954, the tenant could under this statute request a renewal of the existing lease on similar terms as the previous one.  Usually this would be a major issue if the landlord wants vacant possession of the property. A developer landlord can however rely on section 30(1)(f) of the 1954 Act as an objection to such a request for renewal as long as the developer can prove to the court that on determination of the lease that he intends to demolish or reconstruct the premises comprised in the holding or a substantial part of the premises or to carry out substantial work of construction on the holding or part thereof and he could not reasonably do so without obtaining possession of the holding.

Vacant possession is also an important point when dealing with options to break in business tenancies. Any landlord will usually set as a precondition to a tenant’s option to break that the tenant has paid all rent up to date and in addition the tenant provides vacant possession otherwise the option to break is unenforceable.

So the principle of vacant possession is an important concept that developers and landlords should understand and be aware of as failure to do so could prove to be very costly.