Richard Housley explains the law on vacant possession, and what tenants must do to provide it
The phrase “vacant possession” is one which many people will recognise, even if only as a fairly innocuous looking phrase at the bottom of estate agents’ particulars when buying or selling a house. Common sense would suggest that it has a fairly straightforward meaning, such as that the person receiving vacant possession can expect to possess an empty property. To an extent, that is accurate. However, depending on the circumstances, it can be tricky to apply and the consequences for not getting it right can be severe.
The concept is generally encountered in three scenarios:
- as a precondition for buying/selling a property;
- as an obligation owed by a tenant to its landlord at the end of the term of its lease;
- as a condition that a tenant has to comply with in order to break its lease.
In recent case law, disputes have arisen most frequently in relation to break clauses in leases, which will be the main focus of this article.
In summary, the party receiving vacant possession must be able to immediately exclusively occupy and possess the property at the relevant date (“the vacant possession date”). But what precisely does this mean?
Empty of people
This sounds like an obvious point, but its implications are sometimes less so. If a party is still trading from a shop, then it will clearly have failed to give up vacant possession. However, this will also be the case even if an employee is only present to finish cleaning the property (Legal & General Assurance Society Ltd v Expeditors International (UK) Ltd [2006] EWHC 1008 (Ch); [2006] PLSCS 104) or to finalise the repairs (Ibrend Estates BV v NYK Logistics (UK) Ltd [2011] EWCA Civ 683; [2011] 3 EGLR 1).
These decisions can be contrasted with the case of John Laing Construction Ltd v Amber Pass Ltd [2004] 2 EGLR 128. In that case, the tenant successfully gave up vacant possession despite having left security guards in the premises and concrete barriers over the entrance to a demised car park out of concern that the vacant property would be broken into.
A party will also have failed to give up vacant possession if its subtenant has physically failed to vacate. However, the position is less clear if squatters break in after the party has left the premises and they then refuse to vacate. Does a tenant faced with a vacant possession break condition have to remove the squatters in order to comply with the condition and successfully break the lease, even if it was not responsible for the break in?
It seems likely that it would. While the courts have not had to address this point directly, the Court of Appeal in Cumberland Consolidated Holdings Ltd v Ireland [1946] EGD 70 gave a strong indication that the presence of trespassers would prevent vacant possession from being given up, stating that it could see no reason why the presence of a person that prevented the landlord from using the property should be seen any differently to the presence of a physical object.
Third party rights
The party seeking to give up vacant possession must ensure no one apart from the person who is to receive the property is entitled to possess it at the vacant possession date. It must therefore ensure that any rights to occupy the property that it might have granted to any third parties have been terminated. The continuing existence of any such rights would mean that there is a real risk that the property will not be capable of being exclusively occupied by the receiving party after the vacant possession date.
It has been held that the existence of a sublease (Weir v Area Estates Ltd [2010] EWCA Civ 801; [2010] 3 EGLR 91) or a licence (Beard v Porter [1947] EGD 154) will prevent vacant possession from being given up, so any arrangements such as these will need to have been terminated. It is therefore crucial for the party giving up possession to ensure that it is able to do this when granting the rights in the first place – for example, leases with protection under the Telecommunications Act 1984 can present real difficulties in this context.
It is possible that lesser, non-exclusive rights to make use of premises might not cause such a problem. However, there is little case law on this area, and it is conceivable that the existence of a wayleave, for example, might prevent vacant possession from being given up.
Other restrictions
There must be no legal restrictions to possession. The case of Topfell v Galley Properties [1979] 1 EGLR 161 illustrates this point neatly. A contract was entered into for the sale of a two-storey house, stating that the purchase would be subject to a tenancy of the first floor, but that the vendor would give up vacant possession of the ground floor. Post exchange of contracts, the purchaser realised that a Housing Act 1961 notice was in place that prevented the property being occupied by more than one household. As the first floor was already let to one household, the notice effectively prohibited the use of the ground floor, irrespective of the fact that no-one else had the right to occupy it. The court found that the existence of the notice meant that the seller had not provided vacant possession of the ground floor in accordance with the contract.
No items left behind
A party giving up vacant possession has to show that it has left no chattels behind which would substantially interfere with the receiving party’s ability to enjoy its right to possess a substantial part of the property. This can cause a tenant real problems, especially if its business needs to use the premises until near to the break date.
The first question is whether a particular object is a chattel or a fixture. If an item is not fixed to the premises, then it will be a chattel. If an item is fixed, but it is possible to remove it from the premises without damaging it or the premises to the extent that it would be possible to re-use the item, then this is a good indication that it is a chattel. However, it is also necessary to assess the objective purpose for the item being fixed. While there is a good deal of guidance to take from past decisions and the designation of some items can be reasonably predictable (for example, a carpet which is not attached to a floor will generally be regarded as a chattel, whereas suspended ceilings are nearly always seen as being integral to the property and therefore fixtures), each scenario will turn on its facts.
Secondly, if any chattels have been left behind, one must consider whether they would substantially interfere with the recipient’s enjoyment of a substantial part of the premises, a test which was recently confirmed by the Court of Appeal in the leading case of Ibrend. The tenant’s attempt to exercise a conditional break option failed when its workmen remained in the premises after the break date to carry out further repairs. The tenant had sought the landlord’s permission to continue with the works but, in the absence of a response from the landlord by the break date, the tenant decided to press ahead in any event.
The Court of Appeal held that vacant possession would be given if:
- the property is empty of people and that the purchaser is able to assume and enjoy immediate and exclusive possession, occupation and control of it;
- it was empty of chattels, save that there would be no breach of this obligation provided that the chattels left behind did not “substantially prevent or interfere with the enjoyment of the right of possession of a substantial part of the property”.
For example, a few items of rubbish are unlikely to cause a problem, whereas a substantial amount, such as a basement full of sacks containing hardened concrete (Cumberland Consolidated), would be likely to breach the requirement.
Why this matters
The stakes can be high for both parties when a tenant is seeking to operate a break that is conditional on giving up vacant possession. Failing to break the lease could be very costly for the tenant in terms of ongoing liability for rent, service charge, rates, and potential implications for the tenant’s estate strategy. Tenants therefore often take a cautious approach and undertake works which go beyond those strictly required.
Consider, for example, a property that a tenant has occupied for over a decade but which it is now seeking to leave by complying with a vacant possession break condition. Fit-out works were undertaken by both the landlord and tenant, but these were only documented in a fairly superficial contractor’s specification, leaving uncertainty as to who installed what and when.
The landlord refuses to engage with the tenant as to what it should remove (it is under no duty to do so), so the tenant proposes a surrender involving a payment in full and final settlement with a view to avoiding having to comply with the condition. However, the negotiations grind to a halt, perhaps by the landlord’s design with a view to making it impossible for the tenant to do the works itself in the time remaining. Despite having invested a substantial amount of professional costs in the settlement negotiations, the tenant is left with no choice but to carry out the works before the break date, but it has anticipated this risk, and has left just enough time to complete them.
However, it faces difficult choices. For example, the floors are covered with fairly new carpet tiles, which are glued down. The likelihood is that they wouldn’t be classed as chattels, and it seems even less likely that their presence after the break date would interfere with the landlord’s use of the premises. However, the consequences of failing to break the lease are so serious that the tenant removes the tiles, even though this will almost certainly add a large amount to its dilapidations liability when the landlord has to replace them when reletting.
The tenant successfully gives up vacant possession and breaks the lease, but it has had to work hard and incur substantial costs to do so.
Further reading
Woodfall: Landlord and Tenant
Dilapidations: The Modern Law and Practice (5th ed)
Megarry & Wade: The Law of Real Property (8th ed)
Richard Housley is an associate at Cripps
