Vacant possession is a term commonly used in real estate when selling a house or a commercial building. Many sellers are under the impression that the term need not concern them when a property is sold, but Attwood Marshall Lawyers Property Lawyer Alexandra Hughes explains why this is a term that should not be ignored and the consequences of breaching this fundamental term of a sale contract.
What is vacant possession?
Many owners who sell their property don’t realise they must give ‘vacant possession’ of the property on the day of settlement. This means you have to physically be out of the property on or before the settlement date and time, along with all your possessions (including animals!). If the sale involves a property that has a tenant under a lease or even someone in possession of the property without an agreement with the owner, the sale contract specifies whether the property is being sold with ‘vacant possession’ or subject to the tenancy agreement.
The common meaning of these words is fairly straight forward – you need to move out of the house or unit on or before the settlement date/time and take all of your belongings with you, leaving the property in a neat and tidy condition.
In Queensland, real estate agents are not qualified or permitted to give legal advice on the contract and any special conditions, or draft special conditions, in any way.
Under section 24 (3B) of the Legal Professions Act 2007, a real estate agent cannot:
(a) provide legal advice in relation to a property contract or other documents; or
(b) provide, prepare or complete a document prescribed under a regulation.
If a real estate agent engages in legal practice in QLD by providing legal advice or drafting special conditions, they will have committed an offence against the Property Occupations Act 2014, section 219. The maximum penalty for breach is 200 penalty units or 1 year’s imprisonment.
Under section 3E(b)(a) of the Legal Professional Act 2007 a real estate agent can only insert a term into, or alter a term of the property contract or special condition if:
- the insertion or alteration is authorised by a party to the proposed property contract or other document as an insertion or alteration; or
- the insertion is given in writing to the licensee or employee by a party to the proposed property contract or other document as an insertion or alteration; or
- it was previously prepared by an Australian legal practitioner, whether in connection with the property contract or other document, this provision allows the use of a precedent.
On a Queensland Contract of Sale, the Seller has the option to mark the property subject to a tenancy, and provide tenancy details, should there be a tenant residing in the property. If there is no tenant, or the tenancy details of the Contract are not completed, the sale will be subject to ‘Vacant Possession’.
On a New South Wales Contract of Sale, the first page of the Contract has two boxes, one that is marked ‘Vacant Possession’, and one marked Subject to Existing Tenancies. The Seller is required to select either Vacant Possession or Subject to Existing Tenancies, depending on whether a tenant will remain in the property following settlement.
In both States, if there is a tenant residing in the property and they will remain in the property following settlement, it is important that the Contract is correctly completed to reflect this. If the tenancy is not correctly noted on the Contract, the Seller can land themself in hot water come settlement time if they are unable to end the tenancy and deliver up ‘vacant possession’ of the property to the buyer.
If you are required to provide Vacant Possession on settlement, this does not only mean that people in the property need to vacate, but it also means that all goods and belongings not included in the sale are required to be removed from the property. Any items that are moveable objects, such as furniture, appliances, pictures and art, boxes and rubbish etc. need to be removed, unless the Contract specifically states that these items are included in the sale. If at any time a Seller has queries as to what items can be left at the property, they should always contact their lawyers for clarification.
Commercial properties subject to leases
Commercial buildings with leased offices or shops present their own issues with determining which leases will be continued after the sale. Most lease agreements (and their options) are protected even if the property is sold. For example, a 3 x 3-year lease, if registered on title, will be protected even though the property has been sold and transferred to a new owner.
However, unregistered leases or leases that have expired are not protected and the tenants could find themselves being evicted either prior to settlement or after the new owner takes ‘possession’ after settlement.
Commercial properties with numerous leases can be particularly complex and it is imperative that all parts of the property and any lease agreements are dealt with in the contract.
How to prevent any issues
Serious consequences can flow from a Seller’s failure to provide Vacant Possession on settlement, if required under the Contract. The Buyer is entitled to terminate the Contract and claim damages for breach or apply for specific performance of the contract with the Seller. If a Seller is having difficulty removing a tenant from the property, or finding alternate accommodation for themselves after settlement, they should discuss the matter as early as possible with their lawyers. In cases where the Buyer elects not to terminate the Contract, and the parties agree to extend settlement until such time as Vacant Possession can be provided, it is not uncommon for the Seller to be responsible for the reasonable accommodation costs of the Buyer until settlement.
It is recommended that Buyers always arrange a pre-settlement inspection. At the pre-settlement inspection, Buyers should be checking that the property is in the same condition as when they entered the Contract, subject to fair wear and tear, and that the Seller’s belongings and any rubbish is removed from the property. If there are issues at the pre-settlement inspection, a Buyer should immediately contact their solicitor. Depending on the issues that present, a Buyer may not have grounds to delay settlement, however, it’s possible their solicitor could possibly negotiate a retention of sale proceeds or a price reduction, depending on the extent of the problem.
Buyers should always be aware that Sellers have no contractual obligation to have a property cleaned prior to settlement, and they cannot delay settlement if the property is in an unclean state at their pre-settlement inspection. If the property was clean at the time of entering the Contract, and on the pre-settlement inspection there is excessive amounts of rubbish at the property or the property is in an unreasonably unclean state, the Buyer should discuss this matter with their solicitor prior to settlement to determine the options available to them. If a Buyer is particularly concerned about the property being clean on settlement, they should have their solicitor draft a special condition to be included in the Contract before it is signed.
Prior to signing a Contract, both Sellers and Buyers should obtain pre-contractual advice from a qualified solicitor to ensure they understand their rights under the Contract, and to discuss any potential issues. An experienced property lawyer will be able to draft any required special conditions that either party may require, substantially reducing the likelihood of issues arising on settlement.
In most cases, it is simply a matter of identifying whether the buyers want to move into the property immediately and taking steps to ensure the sellers can deliver up possession on settlement.
Attwood Marshall Lawyers – fostering compliance in conveyancing and helping you achieve a stress-free settlement
Ensuring Property Contracts are overseen by an experienced property lawyer is imperative when buying and selling property. Poorly written or vague special conditions can lead to contract termination and a loss of an agent’s commission. Vacant possession is a special condition!
Attwood Marshall Lawyers FREE pre-signing Contract advice to Buyers and Sellers in Queensland. Contract terms and conditions can be explained to the Buyer or Seller prior to signing, and we can further provide advice on any need to draft suitable special conditions. It is often too late to make changes to a Contract or for one party to change their mind once both parties have signed the document.
Our experienced team of property lawyers can ensure special conditions are drafted correctly and will not leave your clients vulnerable to disputes or give rights to a party to terminate, sue for damages or claim compensation. We take the utmost care in reviewing contracts and encourage that this be done prior to anyone signing. This gives clients access to quality advice when they need it most.
For property and conveyancing advice, contact our team any time by calling Property and Commercial Department Manager, Jess Kimpton, on direct line 07 5506 8214, email firstname.lastname@example.org, mobile 0432 857 300.
Our Property and Commercial Lawyers are available at our Coolangatta, Kingscliff, Robina Town Centre, Brisbane, Sydney and Melbourne offices. Need assistance outside regular business hours? Our Robina Town Centre office is also open Thursday nights until 9pm and Saturday mornings until 12noon.