What if a home I buy is tenanted?

February 03, 2016
Melissa McDougall

When you’re buying as an investor it can be highly desirable to have a tenant in place. But it’s a very different kettle of fish when you’re an owner occupier.

You’ve found your dream home, and as settlement rolls around there’s a sense of excitement about moving into your new place. But what happens if it’s rented to a tenant who also calls your property ‘home’?

Talk to your selling agent

An important starting point in this situation is to speak with the selling agent. He or she should know whether the tenant is on a fixed term lease or a periodic lease - and the difference can be critical.

If it’s a periodic lease for instance, things can be pretty straightforward.

By way of background, a periodic lease usually applies when the tenant’s original lease has expired but the tenant has chosen to stay on in the property, usually paying rent on a monthly or perhaps fortnightly basis.

Under these circumstances, the property owner (vendor) should be able to provide notice for the tenant to vacate the property during the settlement term.  That said, the tenant may be entitled to 60 days’ notice so this is always something worth checking with your solicitor or conveyancer before you sign the contract of sale.

You could become a reluctant landlord

On the other hand, the tenant may be part-way into a fixed term lease.

This type of lease will clearly state when the tenancy agreement comes to an end. The downside is that it’s no easy matter for the property owner to break the lease ahead of its expiry date. Nonetheless, you do have options.

The easiest path may be to let the lease run its course. Most residential leases tend to run for six months (check this with your solicitor) and even though you, as the new owner, are not a signatory to the lease, the lease will be rolled over into your name for the remainder of the lease term. That means you are entitled to collect the rent once you settle on the place, and you may want to appoint a property manager.

What if you want to move in ASAP?

The hiccup can occur if you need or want to move into the property sooner rather than later.

If the tenant is happy to move out before a fixed term lease expires, it’s worth aiming to have their consent in writing. Otherwise the bottom line is that a fixed lease will usually need to be honoured.

Here too it is critical to speak with your legal representative and your Mortgage Choice home loan expert.

Tenancy laws differ between states, and while you may have room to negotiate with the tenant if you want them to move on, that can mean taking a hit to the hip pocket. For instance, the tenant may ask for a contribution towards moving costs.

It all adds up to the value of seeking expert advice. Your local Mortgage Choice home loan expert can provide expertise across a variety of home-buying situations. To discover more, call our ofice on 03 9748 7999.  

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