Altering leases

From: Geoff Whitfield


Hi,

I'm almost about to exchange on a property- 3 individual cottages on a single block.

The owner was living in one- it's not in bad condition, but has a little paint and polish to be done. It is, by far, the best of the three. Asking price is $220pw.

One is out of the equation. The third is rented out to a couple, 3 months into a 12-month lease at $180 pw.

The couple may be amenable to either:
.Swapping to the main unit at $220 pw
-or-
.Paying more rent in exchange for a reno- kitchen most of all.

My question is- what happens to the existing lease in either situation (swapping or taking a reno)? It was a contract entered into for 12 months- but with another owner. And what if it had been my tenant- can a lease be varied mid-term with the mutual consent of all parties?

The second unit reno would be barely worth it for cash flow, but would give a lot of capital improvement, and I would prefer to do that now, and refinance, rather than wait for the end of the lease.
 
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Reply: 1
From: Michael Croft


Hi Geoff,

The existing tenants lease is with the former owner not you. Obviously you have a couple of options; you can resume the property for your own purposes or for the member of your family, grant them a new lease with new terms and conditions as mutually agreeable, resign the existing lease leaving all terms and conditions unchanged.

If they are your tenants you can vary the terms of a lease mid term (with the exception of the rent which can only be raised once in a twelve month period). My concern about doing it is that if things go sour the tribunal will invariably apply the terms most favourable to the tenant - as you are so obviously a mean and greedy landlord ;-)

Michael Croft
 
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Reply: 1.1
From: Joanna K


Hello Geoff and Michael,

Firstly, the existing tenants of the property are tenants of the property, not tenants of the landlords. A lease survives a property transfer. Essentially Geoff you purchased the tenants. Irrespective of whether the tenants signed a lease with you as the landlord or someone else as the landlord, their lease is valid. The solicitors would have served the tenant with a Notice of Attornment advising them of the new owner. Ask them if they did this and if they haven't then it MUST be done. Both you and the tenants are bound to the lease that was signed 3 months ago.

A lease can be altered during mid term AS LONG AS EVERYTHING IS IN WRITING!!

If the tenants want to swap houses have an agreement drawn up voiding the current lease that they are on then just sign a new lease on the other property with them.

If they decide to stay in the current property and you wish to have the kitchen reno done you must advise them in writing of your intentions and obviously agree on the new rent.

I had a situation years ago when I was just starting out in property management and the owner and tenant agreed to a rent increase 3 months into a 12 month lease of about $50 per week. I figured everything was great - everyone was in agreement. Later I learned, after I left the company, that the tenants were taken to the tribunal for some reason and it was determined that even though the tenant was on a fixed term agreement, the landlord was still obligated to serve the tenant with 60 days notice in writing of the agreed increase. As the landlord/agent (me!!) didn't do that, the landlord had to repay the tenant the whole increase for something like a 2 year period. I will never forget that lesson!!!!

My point is: even though you all may agree on a rental increase for the kitchen reno - you will still need to give the tenant 60 days notice in writing!!

Michael, Geoff will not be able to resume the property until the lease has expired and/or the tenants move to the other property.

BTW there is nothing that says you can only raise the rent once in every 12 month period. You can raise the rent as many times as you like within any 12 month period, however, the tenants are allowed to object to it and apply to the tribunal that the increase is excessive. So if the landlord does want to raise the rent, he/she will need to do very good market research beforehand so he/she can justify the increase.

Hope this helps.


Kind regards
THE RENTAL SPECIALISTS

JOANNA KARAVASILIS
Principal

rentals@rentalspecialists.com.au
www.rentalspecialists.com.au
 
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Reply: 1.1.1
From: Joanna K


I should clarify my post...

I'm in Sydney, so anything I say refers to legislation in NSW..

Sorry for confusion.

Kind regards
THE RENTAL SPECIALISTS

JOANNA KARAVASILIS
Principal

rentals@rentalspecialists.com.au
www.rentalspecialists.com.au
 
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Reply: 1.1.2
From: Michael Croft


Hi Joanna,

The tenants may be tenants of the property but their contractual obligation is with the lessor.

I assumed the tenancy was periodic hence the statement about resumption - my mistake. Resumption cannot take place with a lease term in place unless agreed to by the tenant. When the lease becomes periodic 4 weeks notice is required or 12 weeks if you want to do a reno.

In the ACT and with a sitting tenant, rents can only be raised once in a twelve month period unfortunately.

Michael Croft
 
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Reply: 1.1.2.1
From: Michael Croft


Should have added leases don't expire in the ACT, they become "periodic". That is the lease becomes a month to month or fortnight to fortnight. The terms and conditions remain basically the same except that the tenant now only has to give 3 weeks notice of vacating and the L/L 4 weeks for resumption, 8 weeks if for sale or 12 if for a reno or redevelopment. The tenant can vacate within the last 2 weeks of notice provided 4 days notice of intention is given.

Geoff as the property in question is in the ACT I strongly recommend you acquire a copy of "the renting book" from a govt shop front or download via the web. It should answer 95% of your questions.

Michael Croft
 
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Reply: 1.1.2.1.1
From: Geoff Whitfield


Thanks Michael, and thank you to all who replied. I am investigating, I will be in a better position when the tenant makes a decision. The help is very much appreciated.

The link I found for the Rental Book was http://www.fairtrading.act.gov.au/OFT/downloads/rentbook.pdf - but it's dated 1998- do I have the newest copy?

Thanks

Geoff
 
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Reply: 1.1.2.1.1.1.1
From: Michael Croft


1998 is up to the minute by our standards; we like leading from behind.

Michael Croft
 
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