Possession Before Settlement
Sometimes on the sale of a residential property, the purchaser wants possession even though settlement is not going to take place when expected. That can occur for a number of reasons:
- The vendor is not ready.
- The purchaser cannot settle yet.
- For some reason the parties agree to extend the settlement date.
Practically it may seem simple to make such arrangements. Legally it is a tricky situation to deal with. It is usually managed by a solicitors undertaking. The purchaser’s solicitor undertakes that their client will settle once a specific matter has been dealt with. It is effectively a guarantee of settlement from the lawyer.
Without that guarantee a purchaser in possession puts the vendor in a weak position if things go wrong. If settlement does not happen as expected it is difficult to get rid of a purchaser in possession. The law provides a means to remove the purchaser but practical issues make the use of the law expensive and time consuming.
If the contract is to be cancelled notice must be given in accordance with section 28 of the Property Law Act 2007. The act sets out a prescribed format for the notice. There are detailed requirements. Amongst other things the notice must:
- Explain the breach.
- Explain the remedy.
- Specify the period for remedying the breach which must be reasonable and must be at least 12 working days.
- Make it clear the vendor intends to cancel the contract if the breach is not remedied.
- Identify the purchaser’s legal rights in respect of the cancellation.
Once that notice has expired a vendor can cancel the agreement. If the purchaser is not in possession cancellation is simply done by a letter. If they are in possession it is much more difficult to cancel. A vendor can cancel by:
- Peaceable re-entry or
- A court order.
Peaceable re-entry is re-entry without a crime being committed. The vendor cannot break in. They cannot use violence or the threat of violence.
Lessons to be Learned
1. As a vendor do not grant early possession unless the arrangement is fully documented and you are in control of how settlement will take place.
2. Obtain an undertaking to settle in full and without deduction from the purchaser’s solicitor before giving possession.