Investor
What happens if your new property is tenanted?
31-Oct-2017
Just like a relationship, sometimes a property comes with baggage too…in the form of existing tenants! An empty house and a new set of keys awaits most home buyers at settlement, but some will inherit a tenant and a house full of somebody else’s belongings.
If you’re happy for the tenants to continue to live in your new home and pay you rent until their lease expires then there’s no problem, but if you’re keen to move straight into your new dream home then existing tenants can present a bit of a dilemma.
As with anything there are ways and means around purchasing a property with a lease in place and of course ways to make it work for you and your family.
The first step is finding what kind of lease is in place. There are two types of leases – a fixed term lease which has a commencement date and an end date or a periodic lease. When a fixed term lease comes to an end, they then normally roll over into periodic tenancy agreements.
The front page of the Contract of Sale will always state if the property is being sold as vacant possession or tenanted. The agent selling the property will have the information on what type of lease it is, the duration of the lease and any other information.
If a periodic lease exists, and the contract is with vacant possession the landlord can give the tenant 30 days’ notice to vacate after exchange and before settlement. But the same terms don’t apply if a tenant is bound by a fixed term agreement with more than 30 days left in the fixed period. The landlord cannot break the lease of the tenant and this lease will follow with the property.
From settlement, the tenant’s rental payments will be paid to the new property owner and the tenant formally advised that the property has been sold and the details of the new owner and where rent is to be paid to. This is call a Notice of Attornment.
New owners have the right to change property managers or manage it themselves, but must inform the tenant. Landlords are also entitled to raise rents, but only if the rent increase falls within the periodic lease period and 60 days’ notice plus service time has to be been given to the tenant.
While it may not be the most convenient option for you to purchase a home with existing tenants, there are benefits such as a guaranteed rental return for the remaining duration of the lease and a feel for owing an investment property. It’s certainly something to consider on your next purchase.
SOURCE – Kerrie Walker, Senior Property Manager at Newton Real Estate.
If you’re happy for the tenants to continue to live in your new home and pay you rent until their lease expires then there’s no problem, but if you’re keen to move straight into your new dream home then existing tenants can present a bit of a dilemma.
As with anything there are ways and means around purchasing a property with a lease in place and of course ways to make it work for you and your family.
The first step is finding what kind of lease is in place. There are two types of leases – a fixed term lease which has a commencement date and an end date or a periodic lease. When a fixed term lease comes to an end, they then normally roll over into periodic tenancy agreements.
The front page of the Contract of Sale will always state if the property is being sold as vacant possession or tenanted. The agent selling the property will have the information on what type of lease it is, the duration of the lease and any other information.
If a periodic lease exists, and the contract is with vacant possession the landlord can give the tenant 30 days’ notice to vacate after exchange and before settlement. But the same terms don’t apply if a tenant is bound by a fixed term agreement with more than 30 days left in the fixed period. The landlord cannot break the lease of the tenant and this lease will follow with the property.
From settlement, the tenant’s rental payments will be paid to the new property owner and the tenant formally advised that the property has been sold and the details of the new owner and where rent is to be paid to. This is call a Notice of Attornment.
New owners have the right to change property managers or manage it themselves, but must inform the tenant. Landlords are also entitled to raise rents, but only if the rent increase falls within the periodic lease period and 60 days’ notice plus service time has to be been given to the tenant.
While it may not be the most convenient option for you to purchase a home with existing tenants, there are benefits such as a guaranteed rental return for the remaining duration of the lease and a feel for owing an investment property. It’s certainly something to consider on your next purchase.
SOURCE – Kerrie Walker, Senior Property Manager at Newton Real Estate.