Vacant possession is an essential element of many property transactions. A condition in a sale contract requiring a seller to give vacant possession will be strictly construed. The meaning of the phrase may vary from context to context. However, it is generally understood to mean that the property will be available for occupation by the buyer. Consequently, the seller will be obliged to remove any tenants, eject any trespassers, and clear any goods from the premises.
Weir v Area Estates Limited [2010] PLSCS 11 serves as a reminder of the importance that the courts attach to the phrase. The company accepted a surrender of a lease from its tenant, and offered the property for sale by auction with vacant possession. The contract for sale stated that the lease, which was still noted on the registers of title to the freehold, had been determined by operation of law. The conditions of sale went on to provide that the buyer “shall accept the position and shall not be entitled to require any further proof of the determination or raise any objection or requisition with regards thereto.”
Unfortunately, the surrender was invalid because a petition in bankruptcy had been presented, and the tenant was subsequently declared bankrupt: section 284(1) Insolvency Act 1986. Purchasers who acquire property from a bankrupt before the date of a bankruptcy order, in good faith, for value, and without notice of the presentation of a petition can shelter behind section 284(4)(a), which protects them, but the landlord was unable to take advantage of these provisions because the bankruptcy petition had been registered as a land charge and noted in the leasehold registers of title.
The court noted that no rent had been paid, and that the premises had stood vacant for a year, but allowed the buyer to rescind the contract, and recover the deposit paid when the property was knocked down to him at auction, on the ground that the seller was unable to provide vacant possession on completion.
The judge dismissed the seller’s argument that the defect in its title was a “technical conveyancing defect”, of which the buyer had been made fully aware. The seller should have asked the court to ratify the surrender or, alternatively, requested the tenant’s trustee in bankruptcy to disclaim the lease before the date for completion under the contract for sale. It had failed to take the appropriate action. Consequently, its title was still encumbered by the tenant’s lease, and it was impossible to say that a claim from the trustee in bankruptcy would have been “laughed out of court”.
The decision underlines the dangers of cutting corners in conveyancing transactions. When a tenant offers to surrender a lease, the landlord should investigate title before proceeding to ensure that the lease will be validly terminated, and update the records kept by the Land Registry as soon as practicable after completion. In the case of an impediment, sellers would be well advised to amend their contracts for sale to include provisions expressly qualifying or negating any obligation to provide vacant possession on completion.
Allyson Colby is a property law consultant
