Selling a property that is currently occupied by tenants requires careful consideration. To minimise potential setbacks during the settlement process, below are some actionable tips for property settlement agents and sellers to adhere to.
Include a special condition in the contract
To sell a property with tenants in place, it is crucial to include a special condition in the Offer and Acceptance contract. The standard Joint Form of General Conditions stipulates vacant possession for the buyer at settlement. Therefore, specifying the continuation of the tenancy in the contract is necessary.
Sometimes, contracts for tenanted properties fail to address the existing tenancy, assuming the tenant will move out before settlement or relying on verbal agreements. However, if the contract does not explicitly state that the tenancy will remain in place, the buyer can delay settlement until vacant possession is available. To avoid such delays, ensure that the contract clearly indicates the continuity of the tenancy.
Clarify rent distribution
Determining how rent payments will be allocated is a common concern for both buyers and sellers. Here’s a breakdown of the process:
- The buyer becomes entitled to rent payments the day after settlement. If the tenant has paid rent in advance, any portion of that rent falling after the settlement day must be provided to the buyer during settlement. The seller’s property settlement agents will adjust the rent and ensure proper distribution.
- If the buyer plans to retain the seller’s property manager, the property manager will handle the rent adjustment.
- If the tenant hasn’t paid rent yet, and the seller is entitled to a portion, the buyer must promptly pay that amount to the seller upon receipt. If the tenant pays rent to the seller after settlement, the seller must immediately transfer the buyer’s share.
Understanding how rent adjustments work helps prevent disputes after settlement.
Allow ample time for tenant relocation
When the tenancy is not continuing post-sale, it is essential to provide sufficient time for the tenant to vacate before the settlement day.
Typically, the property owner needs time for a final bond inspection and carpet cleaning after the tenant leaves. Following that, the buyer conducts a final inspection before settlement.
To ensure a smooth process, it is advisable not to proceed with settlement until the final inspection is complete. Therefore, it is recommended that tenants vacate at least one week before the scheduled settlement date.
By incorporating the tenancy details in the contract and ensuring a timely relocation of tenants when applicable, you increase the likelihood of a trouble-free settlement when selling a property with tenants.