What is “vacant possession”?

Introduction

In a contract for the sale and purchase of land the seller is generally required to yield up vacant possession of the property to the buyer upon completion of the sale contract, unless agreed otherwise by the parties.  

“Vacant possession” not only means that the buyer is entitled to have the property free from occupation of other people, but there must be no impediment which substantially prevents or interferes with the enjoyment of the right of possession of a substantial part of the property.[1]

Buyers and sellers often forget that the meaning of “vacant possession” will depend on the factual context of a transaction and, in particular, the terms of the contract for sale and the nature of the property being sold.  The obligation of a seller to give vacant possession is not absolute.[2]

The recent decision delivered by Lindsay J in the New South Wales Supreme Court case of Berrell v Combines Pastoral Pty Ltd [2015] NSWSC 1334 considered the general principles of delivering up “vacant possession” in determining whether rubbish located on land the subject of a sale constituted an impediment to the buyer’s right to unimpeded physical enjoyment of the property. 

This case provides useful guidance as to the considerations the Court will take into account when determining whether an impediment substantially prevents or interferes with the enjoyment of the right of possession of a substantial part of a property is such as to deny vacant possession to the buyer.

The proceedings

The buyer and the seller entered into a contract for the sale of the subject land at an auction of the property on 27 September 2014 (Contract).  Under the Contract the buyer paid a deposit of $63,000.00.  The purchase price of the land was $633,000.00. 

The date ultimately appointed for completion of the Contract was 11 December 2014.  The buyer failed to complete settlement of the sale and purchase of the property on this date and the seller terminated the Contract on 12 December 2014.

Subsequently, the seller commenced proceedings against the buyer seeking a declaration that the seller had validly terminated the Contract and the deposit was, therefore forfeited to the seller.  The buyer made a cross claim for specific performance of the Contract, however the buyer did not make a claim under the Conveyancing Act (1919) (NSW) for a return of the deposit.

The facts

The subject matter of the sale was a dilapidated property including a “liveable” house which included a pool. 

At the time the Contract was entered into:

1                  the house was occupied by a tenant, but sold subject to vacant possession; and

2                  the pool partially contained building waste and was marked out by safety tape that surrounded it.

Special condition 3 of the Contract provided that “The Purchaser hereby acknowledges that the Purchaser has purchased the property and the improvements thereon in their present physical condition and state of repair and the Purchaser hereby agrees not to make any objection, requisition or claim for compensation with respect to the physical condition and state of repair of the property and/or such improvements”.

The claims

The buyer claimed that:

• the seller was not ready, willing and able to perform its contractual obligation to provide “vacant possession” on 11 December 2014 because the seller had not removed the building waste from a disused, flooded, dilapidated swimming pool on the property that had been used by the plaintiffs as a dumping ground; and 
• having breached the seller’s obligation to give vacant possession of the property on 11 December 2014, the seller was not entitled to terminate the Contract.[3]

The seller claimed that:

• the seller was under no obligation to clean out the pool because, as indicated by special condition 3 of the Contract, the property (including the pool) was sold in as “as is” basis; and
• the building waste in the pool did not substantially prevent, or interfere with, enjoyment of the property sold.[4]

The issues

The Court had to consider whether, at the time the seller terminated the Contract, the seller was ready, willing and able to perform its obligation under the Contract to provide vacant possession of the property.

The decision

Ultimately, the Court held:

• the property the subject of the sale included the pool partially filled with accumulated waste, in the physical condition and state of repair it was in at the time of the auction;
• the pool was of a nature and extent consistent with the nature and character of the rest of the property; and
• the buyer agreed to take it as it was.  If the buyer wanted the pool cleared out before completion, it was incumbent on it to contract for that.[5]

The Court went further to say that if the characterisation of the property as including the pool “as is” was wrong, the waste in the pool was not of a kind that would prevent or interfere with the buyer’s enjoyment of the land.[6]

The Court held that the seller validly terminated the contract and the buyer’s cross claim for specific performance of the contract failed.  The deposit was forfeited to the seller accordingly.

Comments

Both sellers and buyers should be familiar with the terms of their sale contract and, where a property is being sold ‘as is’, the parties should be clear on the property the subject matter of the sale. 

Buyers should ensure that they contract out of any items of the property being sold if they do not want to acquire the particular items upon completion of the contract.  An incorrect identification of the property, the subject matter of the sale, can result in delays in the completion of settlement and may leave a buyer with unwanted items on the property following completion.

Conversely, sellers should be certain about the property the subject matter of the sale to ensure that they deliver up vacant possession of the property upon completion of the contract.  A failure to do so on completion of the contract would preclude the seller from terminating the contract, leaving it on foot and open to an order for specific performance.