Most home buyers have an empty house waiting for them at settlement. However, some may inherit a tenant when they buy a tenanted Sydney property.
Options Regarding Tenancy
A contract for sale has two options when dealing with possession at the time of settlement.
You can purchase a Sydney property with vacant possession, which means that the house will be empty at settlement, and the existing tenant will have to move out by settlement.
Alternatively, you can purchase the property subject to existing tenancies, which means that you become the new landlord of the existing tenant. You will earn rental income starting from the day of settlement. If you’re buying the Sydney property for investment purposes, you’ll save yourself some trouble because you won’t have to look for a new tenant. However, you usually can’t raise the rent until the tenancy agreement expires.
Transfer of Rental Bond and Security Deposit
When renters rent a home, they have to pay a bond or security deposit, typically one month’s rent, to the landlord. When you settle the purchase of a Sydney property with a tenant, your Sydney property lawyer will arrange for the transfer of the bond or security deposit to you.
Check for Breaches of Agreement
When you buy a Sydney property with existing tenant, you have to make sure that you’re renting your property to a good tenant. You should check for any violations to the tenancy agreement, and that all rents are paid up to date.
If you plan to ask the tenant to vacate when the current tenancy agreement expires, you need to give them your notice at least a month in advance. If you’re happy with the current tenant, you can sign a new agreement with them when the current one expires.
Talk to the Property Manager
Besides the tenant, chances are you’ll also be inheriting the property manager when you purchase a Sydney property with tenant. You should talk to the property manager to find out if he or she is doing a good job managing the property. If you feel that the property manager is helpful, you can continue to hire him or her. However, if you find the current property manager isn’t doing his or her job, it’s your right to hire a new one.
Take Out a Landlord Insurance
As the landlord of a rental property, you should take out a landlord insurance on the property. This insurance not only protects the property, but it also covers some of the contents. Some landlord insurances also cover for rent default and theft by a tenant.
It’s not always easy to sell a property with tenant. There are tenant protection rules that you must follow, and you have to rely on your tenant to keep the property clean and presentable at all times. However, if you work with the tenant throughout the process, the process will be much less stressful.
Advantages of Selling Tenanted Property
When you sell a tenanted property, you’ll continue to receive rent throughout the selling process. Tenanted properties are more attractive to buyers who are buying properties for investment purposes, as they won’t have to look for renters and will be able to receive rent as soon as the purchase is settled. In addition, having a tenant in the property can reassure your potential buyers that they will be able to find renters for this property.
Disadvantages of Selling Tenanted Property
The main disadvantage of selling tenanted property is that in most states, you are required to give written notice to the tenant at least 24 hours in advance whenever you want to show the property to potential buyers.
Also, with someone living in the property, you can’t rearrange things as you like to make the property more presentable. If you have a messy tenant, your property may look less attractive to potential buyers.
Furthermore, if a buyer prefers to buy a property with vacant possession, having a tenant in the property may be seen as an inconvenience.
Keeping Your Tenant in the Loop
If you’re considering selling a tenanted property, you should let your tenant know right away. The sale process will affect both you and your tenant. Not only are they facing the possibility of having to find a new place, but you also have to rely on them to keep the property in a good condition for inspections.
If your potential buyers want to inspect the property, you need to give your tenant advance notice and keep in mind that someone is living in the property. You should speak with your tenant to decide the best time to allow access to the property which is suitable for the both of you. If your tenant wishes, they can choose to stay in the property during the inspection. Be considerate to your tenant and their personal belongings. If you plan to take photos of the property for advertising purposes, you should also speak with your tenant about your ideas and what works for the both of you. If you are putting a ‘for sale’ sign on the property, this has to be done in a way that does not interfere with your tenant’s peace, comfort or privacy.
You may offer a financial incentive for your tenant to keep the property clean and to vacate the property when your agent needs to show the place to potential buyers. This will make the sale process less stressful for both you and your tenant. If you’re open and honest with your tenant, you’re more likely to have their cooperation.
In NSW, if you fail to let your tenant know when they signed the lease that you intend to sell the property, then they have the right to break the lease and move out when they find out that you are selling the property.
Vacation of Tenant
If you have a fixed-term lease agreement with your tenant, they have the right to stay in the property until the end of the term. In other words, you can’t just ask them to leave because you’re selling the property.
If you are selling your property in NSW and Contracts have been exchanged subject to vacant possession, the tenant will have to move out of the property. You must give your tenant a written termination notice 30 days in advance if you have a fixed-term lease agreement or 90 days in advance if you have a periodic agreement.
If your tenant has stayed past the end date of the fixed-term lease, the lease becomes a continuation of tenancy agreement. You can terminate this lease by giving your tenant a 60-day notice. Alternatively, you can let your tenant know about your intention to sell the property and give them a 30-day notice once you exchange a contract with a buyer.
DISCLAIMER: The content of this publication does not constitute legal advice and is intended only to provide a summary and general overview. We do not guarantee that it is current. You should seek specialist legal advice or other professional advice about your specific circumstances. Your access to this publication is not intended to create nor does it create a solicitor-client relationship between you and Unified Lawyers.
If you’re thinking about buying a Sydney property with existing tenant, you should talk to a Sydney property lawyer before you sign a contract.