What is Vacant Possession and Why Does It Matter?
When you sell your home, you must provide the buyer with vacant possession on the settlement date. But what does that mean exactly? And what are the consequences if you fail to do so? In this article, we will explain the concept of vacant possession, its implications for vendors and purchasers, and some tips on avoiding disputes and delays.
What is Vacant Possession?
Vacant possession is a legal term that means the property is free of any occupants, personal belongings, rubbish, or other items that might interfere with the purchaser's use and enjoyment. Vacant possession is a specific requirement in most contracts of sale unless the property is sold with an existing tenancy or is being sold by mortgagee sale.
Interestingly – there is no specific obligation for a vendor to clean and tidy the property in order to give vacant possession – presumably because we all have different ideas of what is 'clean' or 'tidy'.
Why is Vacant Possession Important?
Vacant possession is important because it protects the purchaser and ensures they can move into their new home without hassle or inconvenience. It is often also a requirement of a new owner's lender, or Kiwisaver provider (if they have used their Kiwisaver to help purchase). Vacant possession also gives all parties clarity about exactly what is included in the sale – usually just the land, the house, and the chattels listed in the contract – nothing else.
What happens if Vacant Possession is not provided?
Technically, if there is no vacant possession, the vendor can't be "ready, willing and able" to settle, and settlement can't occur. The vendor will be in default, and the purchaser can refuse to settle, charge penalty interest, and seek damages for breach of contract.
The purchaser can elect to settle and claim damages from the vendor for any losses or expenses incurred as a result of the vendor’s failure to provide vacant possession. For any of the vendor's items that remain on the property, the purchaser may be able to dispose of or sell those items after a reasonable time.
The purchaser can also apply to the court for a Possession Order to force the vendor (or occupants) to vacate the property or remove any offending items.
How to Ensure Vacant Possession?
The vendor should plan ahead and allow sufficient time! Getting caught out and leaving things (or people) still in the property tends to be a leading cause of failing to provide vacant possession.
The vendor should remove all personal belongings, furniture, appliances, rubbish, and any other items that are not included in the sale and purchase agreement.
The vendor has moved out, but left some of their stuff behind. Have they provided Vacant Possession?
Sometimes, a vendor will leave things behind that were not included in the sale and purchase agreement. While a vendor is obliged to remove those things, leading cases in NZ have ruled that the purchaser would need to demonstrate that the vendor has actually impeded physical enjoyment of a substantial part of the land, in order to show that vacant possession has not been provided. Whether or not a vendor has given vacant possession is highly subjective, and the Courts have noted that such cases would be rare and would likely only arise in exceptional circumstances. A bit of rubbish and some paint cans left behind are unlikely therefore to prevent vacant possession!