Understanding Vacant Possession in Property Sales

Q1｜What is "Vacant Possession"?

By the completion date, it must reach a state of unoccupied + premises cleared + return of all keys/access cards, enabling the buyer to use it immediately and without hindrance. Purchasing a unit with "vacant possession" means that there should be no existing tenancy or occupants at the time of buyer's takeover. Therefore, rental matters, damages, and deposit issues arising before vacant possession should, in principle, be settled by the previous owner and the tenant during the handover upon lease termination, before delivering the vacant unit to the buyer.

Q2｜If the lease has six months remaining and the buyer plans to self-occupy, can they request the tenant to move out immediately?

Generally no. In the case of a sale with an existing tenancy, the current fixed-term lease remains binding on the new owner after completion; unless the lease contains an exercisable early termination clause or there is a mutual agreement to surrender, the tenant can legally occupy the property until the lease expires. If the sale agreement specifies "vacant possession", it becomes the seller's responsibility to deliver the unit vacant upon completion.

Q3｜Can a new buyer issue a 'one-month notice' to request the tenant to vacate?

For a fixed-term lease, it is not possible to terminate solely with a 'one-month notice'; it must be handled according to the early termination clause in the contract or through mutual agreement for return.

Q4｜What are the responsibilities if vacant possession is not delivered on the completion date?

General Principle: Unless the contract explicitly states "sold subject to tenancy" or specifies a different delivery date, the seller must deliver vacant possession on the completion date. Failure to do so typically constitutes seller's failure to deliver as per the contract.

The general contract terms prevail and are finalized by a lawyer. The buyer's options include:

• Postpone completion (delay until actual vacant possession is delivered),
• Retain the price (retention) (where the lawyer temporarily holds part of the property price, to be released after vacant possession is delivered),
• Terminate the contract / handle breach (proceed according to the contract terms).

Q5｜How should the deposit, damages, and outstanding rent be handled after vacant possession?

A. Vacant Possession Sale (Lease terminated and tenant moved out before completion)

• Responsibilities and Process: The original owner should complete the handover and inspection (Condition Report) upon the tenant's departure, deducting from the deposit for outstanding rent, late fees, and repair costs for 'abnormal wear and tear' as per the lease agreement; the remainder should be refunded to the tenant. It is advisable to include photos/videos, an equipment inventory, and utility meter readings with settlement statements.
• Relationship with Sale Completion: Deposit matters should be settled before completion; the buyer should receive a vacant unit, and the deposit will not be transferred to the buyer.

B. Sale with Tenancy (Lease continues after completion)

• Deposit Transfer (choose one or have a lawyer draft an alternative):
  • Transfer the deposit to the new owner, with the new owner providing a undertaking/indemnity for future refund responsibilities; or
  • The original owner first refunds the deposit to the tenant, and then the new owner collects a new deposit of the same amount. Simply 'passing on' the deposit may not release the original owner from liability; it must be handled with written terms.
• Division of Past and Future Responsibilities: It is recommended to specify in the sale documents the cut-off date for rental, fees, and default liabilities before and after the completion date. Outstanding rent/damages arising before the completion date should generally be handled by the original owner (e.g., through price adjustments or retention funds between the old and new owners); responsibilities after the completion date are assumed by the new owner.
• Basic Principle: Do not unilaterally use the deposit to offset the last month's rent; all deductions must be supported by evidence and specified in writing.

When a transaction is concluded on the premise of vacant possession, it means the buyer receives a vacant unit without rental obligations; any related deposits, damages, and rental arrears should be settled between the previous owner and tenant during the handover process. If constraints necessitate a transaction with an existing tenancy, the method of deposit transfer and division of past/future responsibilities must be clearly stated in the sale documents, with prices and timelines adjusted for risk. Managing handover details through explicit terms and comprehensive evidence is essential to securely address the three major issues of deposits, damages, and rental arrears.