You may (or not) have heard the term “Vacant Possession”, but what does it actually mean? (And yes, this is surprisingly relevant to the mess left behind by a vendor!)

When a property is sold with “vacant possession”, the vendor is representing that at settlement, the property will be untenanted or empty. Unfortunately, what constitutes “empty” does not necessarily always translate to clean or free of rubbish.

UK Case law has established that vacant possession means the property is free from the interest of any third party, including any physical impediment which would substantially interfere with the enjoyment of the property.

In this case, it was held that leaving physical impediments in the property meant the purchaser was prevented from using the property the way they had intended. Which is similar to leaving a tenant in possession.

The property being bought in that case had extensive cellars underneath that were filled with rubbish. The court found to give vacant possession the vendor had to remove the rubbish.

What does this mean for New Zealand (and its lack of extensive wine cellars)?

While the obligation for a vendor to remove rubbish or thoroughly clean the premises is not necessarily synonymous with the term “vacant possession”, NZ Courts frequently refer to decisions of foreign jurisdictions when interpreting matters before them. Not that we are encouraging you to take your matter to court, but the UK authority should help guide a dispute concerning the property interpretation of vacant possession under the standard terms of the ADLS Agreement for Sale and Purchase of Real Estate.

Where the property is sold with vacant possession, the vendor “shall so yield the property on the settlement date”. Where it can be established that the vendor is either unwilling or unable to give vacant possession on the day of settlement, then, provided the purchaser can evidence its ability to settle, the vendor must pay the purchaser, either:

1. compensation for any reasonable costs incurred for temporary accommodation for persons and storage of chattels during the default period; or

2. an amount equivalent to interest at the interest rate for late settlement on the entire purchase price during the default period.

As touched on above, what constitutes “vacant possession” is not exactly clear and it may hinge on the extent to which the remaining items impede the purchaser’s ability to use the property in the intended manner. For instance, a car left in the garage will obviously deprive the purchaser of the ability to enjoy the garage, however, a bucket of old paint or bag of rubbish may not.

Hopefully Lawyers representing parties in settlement of a property transaction can apply a degree of pragmatism and resolve the matter without escalation.

The above entitlements to compensation for failure to give vacant possession are in addition to and separate from claiming compensation for faulty appliances. You can read more about this issue by checking out our blog on “Vendor Warranties and Compensation Entitlements”.

With reference to faulty appliances however, the key takeaway for claiming compensation is that notice of compensation must be served before settlement. You must therefore perform the pre-settlement inspection of the property at least a day prior to settlement, preferably two.

Summary

If you find yourself in the unfortunate situation of getting to settlement and discovering the property you are a purchasing is a mess, you are not without hope.

The best step to mitigating settlement issues is to identify any potential issues before entering into a contract. At this stage, your lawyer can specifically address concerns over chattels, fixtures, rubbish and other items on the property that should be removed are included as warranties in the further terms.

Keep the lines of communication open, talk to your agent and lawyer and ask questions about the state of the house so, hopefully, you’re not left with any surprises on settlement.

If you’ve already entered into an agreement without inspecting the property, use the pre-settlement inspection as your opportunity to ensure chattels and fixtures are in reasonable working order and the property is in the same state as at the date you entered the agreement i.e. no new fixtures, damage to walls etc.

Should you have any questions in relation to the content of this blog, let us know. Goodwill Law prioritizes it clients needs, we are happy to help, and also offer free upfront consultations, advertised fees and automated fee estimates.