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Wanting to buy but the property has tenants? HERE’S WHAT YOU NEED TO KNOW

January 27, 2022

Sifting through the mumbo jumbo of legal terms and contracts can be hard when buying your first home, but made even harder when it’s occupied with tenants. Depending on what you want to use the home for, this could be an issue or a bonus.

Here is a break down of what you should know in order to make an informed decision and what you can do about it.

Notice periods for different types of lease

Don’t move just yet – the notice period will depend on what kind of lease the property is under. This information should be in the vendor disclosure statement and should be paid attention to.

Periodic Lease: This entitles the tenants to a 60 day notice period to vacate, you as the new landlord can inform them of this. If it is before settlement, then it is the responsibility of the current owner. If that isn’t done, you can follow up with your solicitor to make sure it is actioned.

Fixed Term Agreement: This is where it can get hairy – the tenant will remain entitled to stay until the end of the agreed term on the lease. Normally, if you buy the property while this is in effect, the lease is then transferred to you as part of the settlement process.

Though never fret! If you buy your first home with existing tenants this will not impact your First Home Buyer stamp duty concessions. It generally stands that you need to move into the property within the following 12 months of settlement and then reside there for a further 12 months as your primary dwelling.

Meaning, you could be the landlord of the existing tenants until their lease finishes and required notice is given. In this instance, it is crucial to organise landlord insurance through a property manager along with your home insurance.

Failure to give vacant possession

In the case that you are told there would be guaranteed vacant possession but there isn’t, there are things you can do however depends on exactly what the contract says.

Where tenancy is written into the contract, the property will be sold ‘subject to existing tenancy’. This means they do not need to vacate at settlement and may remain in the residence, with you as the new landlord.

If a tenancy is not listed in the contract, then vacant possession is needed. Though, if a seller cannot succeed in vacating the tenants, it becomes a contract breach and they simple cannot settle.

In a perfect world, the contract will stipulate special conditions for when the seller cannot provide vacant possession. It may be noteworthy to mention it to your solicitor as well, who will have reviewed this against the vendor contract.

It is worthwhile thinking about these points to ensure you avoid a contractual mess up if anything doesn’t go to plan.

So what can the buyer do about it?

There are a few options here…

As the buyer you have the right to terminate the contract – but take into account you will need to start the process again when buying another home. Since some journeys can take a bit of time and energy to find the one to buy, consider thoroughly if you want to pull out or not.

If you’re made of time and money, you can sue for damages but this can be a very inefficient process. That being said, you may end up with eviction proceedings and it could all be worth it.

Negotiate your way with the tenants to move out. It should be down to the seller to do this, but you may want to encourage them with offering monetary assistance for the move or waive the last week’s rent.

Generally, your solicitor should be able to urge the selling party to vacate their tenants before settlement.

But… do your research first

It is pretty important to research the property before buying. If occupied for rent it is ideal to speak to your agent, landlord or property manager for tenant history. As an investor, you need a good picture on what you’re potentially buying into. We suggest to learn about the area, vacancy rates, median rental value and demographics. Consider if this is what you’re looking for and what can give you most out of it.