Buying a property with a tenant in place

Often properties are sold with tenants in place.  This doesn’t necessarily mean that the tenant will be in the property from the settlement date.  The real estate agent will no doubt advise you of when the tenant will be vacating the property, but be sure to check the tenancies section of the contract.  This section will let you know if you are buying the property with the tenant in place, or if you will have vacant possession at settlement.

The two main types of residential tenancies are as follows:

  1. Periodic – a tenancy that runs on a month to month basis.
  2. Fixed term – when there is a set term for the tenancy, normally six or 12 months.

If the tenant is on a periodic agreement, and the buyer seeks vacant possession at settlement (that is, the buyer does not want to continue renting the property after settlement), once a contract of sale is entered into, the landlord can give the tenant notice requiring them to vacate the property with 4 weeks’ notice.

If the tenant is on a fixed term agreement, the tenant is entitled to stay until the end of their fixed term.  Therefore the owner cannot force the tenant to leave, even if they are selling the property. Following settlement, the buyer will become their landlord.

If the end of tenancy date falls later than the settlement date, then this tenancy should be noted in the contract of sale, and the buyer is obliged to accept the property with the tenant in place.

Ending the tenancy

A tenancy can be ended by the tenant or the landlord, subject to certain criteria and time frames.  The following time frames relate to the different tenancies without grounds (so the tenant has not breached the tenancy agreement):

  1. Periodic tenancy – this type of tenancy can be ended with four weeks’ notice once the property is under a contract of sale.
  2. Fixed term tenancy – a tenant must be given at least two months’ notice, and the tenancy will only end on the end date of the tenancy agreement or the end date of the notice period (whichever is later).

Regardless of the above, the tenancy can be ended at any time if the tenant and landlord mutually agree in writing.

If the tenant remains after settlement

If you are purchasing a property that will have a tenant in place following settlement, you will need to decide if you would like to continue with the current property manager.  You can engage a new property manager or manage the property yourself if you prefer.

The following will need to be attended to at or following settlement:

  1. Rent adjustments should be made with the seller;
  2. The tenant must be advised of the sale, and directed to pay any future rent and queries to the new owner; and
  3. A form providing notice of the change of landlord should be lodged with the Residential Tenancies Authority. If applicable, this form should also note the change of any property manager.

As the new landlord, you must adhere to your obligations under the tenancy agreement and all relevant law.

If you are looking at buying or selling a property with a tenant in place, please don’t hesitate to contact Icon Legal for further assistance on how to deal with a property with a tenant in place.

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