What you need to know when buying a tenanted property

Usually, an empty house or office space and a new set of keys await a buyer at the end of the settlement, but that is not always the case.

Some properties come with existing tenants. Depending on your plans for the property, this can be a bonus or an inconvenience. Either way, it may be helpful to understand your legal obligations and options when purchasing a property with tenants.

How do you know if the property has tenants?

In the case of a tenanted property on the market, typically the listing mentions it. Alternatively, the seller’s agent may advise prospective purchasers there are existing tenants. A copy of a lease is usually included in the Vendor Statement if the property has current tenants and the Contract should be noted as being ‘subject to lease’, if there are tenants and the Contract isn’t noted as being subject to lease, then you are entitled to vacant possession of the property. If the vendor is unable to deliver this, this is where problems may arise.

Do you have to honour an existing lease of a tenanted house when purchasing it?

Generally yes. Where a contract stipulates that the property is sold ‘subject to a lease’, a purchaser becomes the landlord and is bound by the terms of the lease whether they want to live in the property or hold it as an investment. 

How long must you honour the lease of a tenanted property?

There are various types of rental agreements allowed in Victoria with the two most common ones being fixed-term and periodic agreements. Depending on whether the lease is fixed-term or periodic, will determine what notice to be given if the purchaser wishes to gain vacant possession of the Surf Coast property.

Periodic leases

If a periodic lease exists, the existing landlord (the vendor) can present the tenant with a ‘Notice to Vacate’ which gives the tenant 60 days to vacate the premises. The ‘Notice to Vacate’ can be issued during the settlement period or before the property is sold. (Note due to the current COVID restrictions the Victorian Government has temporarily banned some evictions until 28 March 2021).

Fixed-term leases

It is a different story when you purchase a Geelong, Bellarine Peninsula or Surf Coast property with a fixed-term tenancy agreement. Neither you (the purchaser) or the landlord (the vendor) are allowed to force the tenant to move out of the property—you as the purchaser have to adhere to the length of the fixed-term tenancy contract. One workaround option is to negotiate with the tenant to end the lease early privately. If you do this, you should work with a property lawyer to draw up a written termination agreement to ensure the tenants comply.

Things to ask when purchasing a Bellarine Peninsula property with tenants

Whether you purchased the tenanted property as an investment, or you are okay with having tenants in your new Surf Coast property until the end of their tenancy agreement there are some things to consider before signing the Contract of Sale.

• Tenants profile – do they pay rent on time, how long have they rented the property, etc.
• Property issues – are there outstanding maintenance requests or known problems with the property.
• Neighbourhood demographics – what is the median rental value, current vacancy rates of other dwellings or commercial real estate space, etc.

It could also be worthwhile finding out if the tenant is hoping to have their lease renewed as that could be negotiated with the purchase.

Purchasers responsibilities when buying a residential or commercial property in Geelong

Upon purchasing a tenanted Bellarine Peninsula or Geelong home or commercial property, you may engage the services of a professional property manager or self-manage. No matter how you decide to manage the tenanted property, you must take care of a few things.

• Advise the current property manager that you are the new owner and/or property manager.
• Arrange for copies of the tenancy agreement, lease extensions, inspections, tenant ledger, manuals, and keys to be collected upon settlement.
• Obtain contact details for the tenant and advise them of your or your property manager’s contact details for any maintenance or ongoing inquiries.
• It could also be beneficial to take out landlord insurance to protect yourself as a landlord, whether you are self-managing or using a property manager.

What happens to the tenant’s bond and rental payments when a new landlord takes over the property?

If you take over a tenancy, the bond will remain in place; however, changes to the ownership details or property management details need to be provided to the Residential Tenancy Bond Authority.

On the day of settlement, the purchaser is entitled to receive rent. If the rent is paid in advance, an adjustment of the purchase price will be made to compensate the purchaser.

Seeking advice from the Geelong property transfer experts

If you are purchasing a property that is ‘subject to a lease’, you should seek advice from a property transfer expert. Cahill Rowe Conveyancing can assist you with both the conveyancing and provide legal counsel when purchasing a tenanted residential or commercial property. Contact Cahill Rowe Conveyancing to speak with our property conveyancing lawyer on (03) 5292 1994.