What happens when the home I buy is tenanted?

February 05, 2016
Ali Batten

Finding your dream home brings a sense of excitement – planning where you will put the lounge, or where you will plant the herb garden. But what happens if the property is already rented to a tenant who also calls your property ‘home’? 

In this situation, it can be highly desirable when you are buying the property as an investment, but when you are buying as an owner occupier, this can cause problems.

Talk to your selling agent
Talking to the agent is the first thing to do. They should know all the details of whether the tenant is on a fixed term lease or a periodic lease – the difference can be crucial.
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.

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.
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.

Contact either Owun, Suzanne or Costa on 02 9517 1818 or newtown1@mortgagechoice.com.au to discuss your options. Or, if you feel like dropping in at our office, we are located at Suite 106, Flourmill Studios, 3 Gladstone Street, Newtown 2042. Be sure to share our blog on Facebook and Twitter and let others join the conversation!

Posted in: Property market

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