Vacant Possession in Property Transactions-What Does it Mean?

It is a condition of the standard Law Society condition that vacant possession of the property in sale will be handed over on closing. General conditions 17 states:

17. Subject to any provision to the contrary in the Particulars or in the Conditions or implied by the nature of the transaction, the Purchaser shall be entitled to vacant possession of the Subject Property on Completion.

Vacant possession disputes

Occasionally disputes can arise on handover, however, about vacant possession. It may appear self-evident and obvious what vacant possession means but situations can arise which cause tension, disputes, and bad feeling between the parties.

For example, it is obvious that a property should be clear of people but what about objects such as furniture, appliances, old beds, tables and chairs, curtains, carpets, temporary partitions?

The new owner does not want the hassle and cost of having to remove broken and worn furniture, for example, and the vendor may be happy just to let the whole lot go with the house and avoid the cost of organising a skip.

One of the problems surrounding vacant possession is that it is not defined anywhere in Irish law and there is no settled decided authority on the point.

In the UK the question has been investigated by the Courts from time to time, but each case will be decided on its own particular facts and circumstances. At its essence, however, is agreement that vacant possession means the property is free of people and chattels (objects) and the purchaser will be able to enjoy the property from day one.

It may be the case that some contents are included in the sale, and these should be agreed between the parties in advance. But anything over and above what is agreed must be removed.

The upshot is that if the vendor is not able to give vacant possession the purchaser may refuse to complete the sale. Or he may complete and bear the cost of removing rubbish, old furniture, and so forth and then sue for damages including the cost of removals.

The vendor can sue for specific performance of the contract, and completion, if the purchaser refuses to complete on the grounds that vacant possession is not being hander over. In a worst-case scenario one of the parties may seek to rescind the contract and collapse the deal.

Conclusion

If you are the seller it does not make much sense to allow the issue of vacant possession to scupper a sale or to cause an avoidable row to develop between you and your purchaser.

Especially if a skip or a man with a van will solve the problem.

The Residential Tenancies (Amendment) Act 2019-Key Changes

The Residential Tenancies (Amendment) Act 2019 has made some significant changes in respect of residential lettings/tenancies. Let’s take a look at them:

Termination of tenancy-notice periods

Duration of tenancy Notice period from 4th June 2019
Less than 6 months 28 days
6 months to 1 year 90 days
1 year to 2 years 120 days
2 years to 3 years 120 days
3 years to 4 years 180 days
4 years to 5 years 180 days
5 years to 6 years 180 days
6 years to 7 years 180 days
7 years to 8 years 196 days
8 or more years 224 days
  • A copy of the termination notice must be sent to the RTB within 28 days after the expiration of the notice period
  • Termination to sell the property: the landlord must enter into a contract to sell the property within 9 months of termination; if this does not happen he must offer the property to a former tenant
  • Termination to allow occupation by a family member: if the family member leaves the property within 1 year it must be offered to the former tenant
  • Termination for substantial refurbishment: the property must be offered back to the tenant when the refurbishment is completed; the landlord must also furnish an architect’s certificate confirming that the tenant must, for health and safety reasons, vacate the property for 3 weeks
  • Termination for change of use: if a property becomes available for letting within 12 months it must be reoffered to the tenant

Rent controls

Existing rent pressure zones have been extended to 2021 with new areas being added as the average rent in the state will be calculated by excluding average rents in Dublin and the greater Dublin area.

Properties that were not let in the previous two years in a RPZ were exempt from the 4% annual cap; this exemption has been removed.

Properties that had a substantial change in the nature of accommodation provided were exempt; now there is a definition of what constitutes substantial change. A change must involve either a permanent extension which increases the floor area of the property by 25% or an improvement of the BER rating by 7 or more ratings or at least 3 of a list of other factors-for example, a permanent increase in the number of rooms or adaptation of the property for access by persons with a disability.

There are also new notification requirements for a landlord seeking to rely on an exemption from the RPZ rent restriction.

The restriction on rent reviews every 2 years which was to expire in 2019 has been extended by 2 more years to 2021.

Offences and penalties

It will be an offence for landlords to be in breach of the provisions dealing with rent restrictions or providing false information to RTB or failing to comply with notice periods or notices from RTB.

The RTB now have extended powers to include the power to carry out investigations, deal with complaints, conduct oral hearings, and impose sanctions on landlords for improper conduct which is defined in the Residential Tenancies (Amendment) Act 2019.

Sanctions can involve the payment of a financial penalty up to €15,000 to RTB and the payment of RTB’s costs up to a maximum of €15,000.

Criminal proceedings can also be taken against landlords and appeals/applications may be brought to the Circuit Court.

Registration fees

There is now a new annual registration fee as well as the original registration fee on the commencement of the tenancy. For a single dwelling this is €40 and €40 annually with a bulk registration facility of €170 of up to 10 tenancies in the same property.

Student accommodation

The act extends the scope of the residential tenancies legislation to student accommodation but this has not come into effect yet. Properties where the landlord lives-for example digs-are excluded from the legislation.

Short term lettings

A short term letting (up to 14 days) will require planning permission as it will be considered a change of use from a planning perspective. This is designed to hit Airbnb type lettings in Rent Protection Zones.

Conclusion

There are some significant changes in this legislation to which landlords should pay close attention, particularly in a climate of a housing/accommodation shortage and a growing awareness of tenants in relation to their rights as tenants.

Attorneys of Companies Can Sign Deeds as Individuals

Did you know that an individual can execute (sign) a deed with his signature alone but a company needs a seal to make a deed?

This fact has been the basis of some technical defences put forward by individuals who are being pursued by banks for outstanding loans, in repossession proceedings, for the appointment of receivers on foot of their mortgages and charges, and so forth.

Let’s take a look, first, and see what is a deed. The Land and Conveyancing Law Reform Act 2009, section 64 describes a deed as:

(2) An instrument executed after the commencement of this Chapter is a deed if it is—

(a) described at its head by words such as “Assignment”, “Conveyance”, “Charge”, “Deed”, “Indenture”, “Lease”, “Mortgage”, “Surrender” or other heading appropriate to the deed in question, or it is otherwise made clear on its face that it is intended by the person making it, or the parties to it, to be a deed, by expressing it to be executed or signed as a deed,

(b) executed in the following manner:

(i) if made by an individual—

(I) it is signed by the individual in the presence of a witness who attests the signature, or

(II) it is signed by a person at the individual’s direction given in the presence of a witness who attests the signature, or

(III) the individual’s signature is acknowledged by him or her in the presence of a witness who attests the signature;

(ii) if made by a company registered in the State, it is executed under the seal of the company in accordance with its Articles of Association;

(iii) if made by a body corporate registered in the State other than a company, it is executed in accordance with the legal requirements governing execution of deeds by such a body corporate;

(iv) if made by a foreign body corporate, it is executed in accordance with the legal requirements governing execution of the instrument in question by such a body corporate in the jurisdiction where it is incorporated,

and

(c) delivered as a deed by the person executing it or by a person authorised to do so on that person’s behalf.

You will see that a deed, to be properly executed, must be

  1. Signed by an individual in the presence of a witness
  2. Sealed with the company seal if executed by a company

This question arose in a case McGuinness & Mulligan v Ulster Bank Ireland Limited heard by the Supreme Court.

The argument by the borrowers was that the deed which appointed a receiver to their property was invalid because it was the bank’s deed and was not executed with the company seal, which they claimed was a legal obligation.

What happened was a bank official had appointed the receiver under a power of attorney granted by the bank.

The borrowers argued that it was the bank’s deed and it necessitated the bank’s company seal, which was absent.

The Court agreed that it was the bank’s deed but made on its behalf by an authorised individual who could execute the deed of appointment of receiver without the bank’s seal. The Court recognised that the parties to a deed may be different from those who execute or make the deed between the parties, which occurred in this case.

Read the Supreme Court decision in McGuinness & Anor v Ulster Bank Ltd [2019] IESC 20.

Vat on Property in Ireland-the Essentials

Vat on property is something that is easy to overlook if you are buying commercial property. It may also apply to residential property, depending on the circumstances, so you need to be careful and obtain expert tax advice if there is any doubt in your mind.

The current situation with regard to VAT and property is the regime in place since 2008.

Since then most property transactions are exempt but there are important exceptions where the option to tax the supply of the property is exercised in certain situations.

When we refer to ‘property’, remember, we are also referring to leasehold property in addition to freehold interests.

Commercial property, new buildings

Vat is chargeable at 13.5% on a new building. A ‘new building’ is

  1. The first supply of a completed property within 5 years of completion
  2. The second and subsequent supply of a property, if the supply is made within five years of completion, and the building has been occupied for less than two years.

Commercial property, second hand buildings

Properties developed after 1st July, 2008 are exempt but the vendor and purchaser can jointly opt to tax.

If this option is not exercised the vendor/developer will face a clawback of a proportion of the vat which he has already reclaimed from Revenue on the acquisition or redevelopment of the property. This clawback will be calculated on the vat life of the property.

Leasehold property

After 1st July, 2008 all lettings are exempt from vat.

The landlord can, however, elect to tax and charge vat on the rent at 21%. If he does not opt to tax he will face a clawback based on the vat he has already claimed on the development and/or acquisition of the property.

This option to tax does not arise if the landlord himself or a person connected to him occupies the building.

Assignments of leases

The assignment of surrender of a long lease will be chargeable to vat if the tenant who is the assignor was entitled to reclaim vat on acquiring the original lease or the development of the property.

Residential property

The first supply of new residential property is liable to vat.

Valuable resource

This page from the Revenue Commissioners is worth reading closely if you are concerned about vat on property. You are strongly advised to obtain tax advice from an accountant or tax consultant if you suspect that the vat position is not clear in either your supply or purchase of property.

“Subject to Contract”-What Does This Mean?

“Subject to Contract” is a phrase you may come across from time to time.

I encounter it most frequently in relation to the purchase and sale of property and in employment law settlement agreements.

What does it mean? Let’s take a look, shall we?

At its simplest it means that an agreement is being negotiated but all the terms have not yet been agreed formally in a contract. All correspondence prior to the formal contract being agreed is “subject to contract” as the correspondence is an attempt to arrive at an agreement between the parties and the proposals in the correspondence or documents will not have legal effect until it is agreed to be binding on the parties.

The words “subject to contract” are said to have suspensive effect because the parties will not be bound until there is some form of formal agreement or contract.

In land deals all correspondence will be marked “subject to contract/contract denied” or “subject to lease/lease denied” until a binding contract comes into existence when both parties sign it.

The bottom line is that no binding contract for the sale or purchase of property comes into existence until signed by both parties.

Up to this point the correspondence and documents which are exchanged between the parties in order to arrive at an agreement are an attempt to agree all terms of the contract and are marked “subject to contract/contract denied” as a consequence.

Precisely the same effect is caused in commercial disputes when correspondence is entered into to settle the issue and some type of formal contract will be entered into at the end of the process.

The most common agreement of this type that I come across is a settlement agreement between employer and employee whereby the employee is leaving the employment.

Other attempts to arrive at a settlement agreements would see all preceding correspondence marked “subject to contract” or “without prejudice”.

Employment settlement agreement

The correspondence, and the agreement itself, will be marked “subject to contract/without prejudice” until both parties sign the agreement. Then, and only then, does it become binding and can be sued upon.

You can learn more about employment settlement agreements here and without prejudice correspondence here.