Vacant Possession

What does it mean?

If you are buying a property and intending to live in it, one of the first things that you should ensure is that the property is being sold with vacant possession.

Vacant possession means that you receive the property without the previous owners, tenants or their possessions (not included in the chattels being sold with the property) still occupying the property or any rubbish still occupying the property. This is an important feature of every property transaction; without vacant possession being provided by the seller, the buyer cannot take possession of the property until it is vacant.

Timing for vacant possession

Vacant possession needs to be given to the buyer no later than 4:00pm on the settlement date. Best practice if you are selling is to have moved out as soon as possible, ideally before the settlement date so that there are no unnecessary delays on the actual settlement. This isn’t always possible if you are settling on the property you’re moving to on the same day. In this instance, it is important that you let us know not to settle until you can provide vacant possession. You must have all of your belongings moved, and any rubbish cleared from the property so your buyers can move in straightaway.

At the same time, it is prudent that the property that you are moving into is also vacant. If you’re relying on being able to move items out of your property to your new one and that seller is unable to settle, then technically you may not yet be able to provide vacant possession of the property you are selling yourself.

Clear communication with us regarding timing and/or pre-planning or storing items ahead of your settlement can help alleviate this kind of pressure on the settlement date. The times for performance of your settlement day obligations are all recorded in clause 3 of the standard sale and purchase agreement of real estate, along with the remedies available to buyers where vacant possession cannot be provided.

Tenanted properties

The circumstances where a property would not be sold with vacant possession would usually include a tenanted property being bought for an investment purpose where the buyer wants to retain the current tenant for rental income. Due to this being a relatively unusual occurrence, sellers looking to make their sale as attractive as possible should consider selling with vacant possession so their potential sales market is not limited.

If you are selling a property that is tenanted and want to provide vacant possession, you should ensure that you give your tenants the requisite notice under the Residential Tenancies Act 1986 that they need to move out in the required time period. Failing to do so could result in delays to the settlement of your sale that could potentially cause penalty interest to be payable to the purchaser.

Unable to provide vacant possession?

If you cannot provide vacant possession for your buyer on the settlement date, there are some actions that may be taken by the buyer set out in clause 3.13 of the agreement.

Refusal to settle: If you cannot move out and are still occupying the property or if your tenant has not moved out due to not being given the requisite notice or some other dispute, the buyer may refuse to settle. This can be a serious problem where you are relying on funds from your sale to complete a purchase; it may result in a chain of defaults for which you (as the originating defaulting party) may be liable. The cost for delaying settlement is generally prescribed by the penalty interest rate that is recorded on the front page of the agreement.

Withholding funds: If you have moved out but left rubbish and/or other belongings at the property, the buyer may seek to withhold a portion of the purchase price on settlement until this is removed. If you do not remove these items within an agreed time period, the buyer may retain those withheld funds. Again, if you require every penny from your sale proceeds, this could also trigger a chain of defaults.

Compensation claim: In some instances the buyer may claim compensation from you under the compensation process in clause 10 of the agreement. This will be a claim for the cost of removing any items left behind that the buyer has had to dispose of or any other costs that the buyer has incurred as a result of you failing to provide vacant possession. A disputed claim for compensation could result in a delay to settlement while the dispute is resolved.

Get organised

Due to the severity of the consequences of not providing vacant possession and the potential cost associated with failing to do so, it is crucial that you discuss with us your transaction timeline to ensure that your settlement proceeds smoothly rather than turning into an expensive nightmare

DISCLAIMER: All the information published is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this article. Views expressed are those of individual authors, and do not necessarily reflect the view of this firm. Articles appearing in this newsletter may be reproduced with prior approval from the editor and credit given to the source. Copyright, NZ LAW Limited, 2019. Editor: Adrienne Olsen. E-mail: adrienne@adroite.co.nz. Ph: 029 286 3650 or 04 496 5513.