Delayed Settlement Dilemma

From: John P


Hi folks, I need your recommendations / opinions on the following:

I bought an IP and have put a holding deposit down.(Have not exchanged yet but thinking ahead, so assume I have exchanged) The vendor has said that he would like to delay settlement until the end of the financial year and will be moving out in 2 weeks. He would like to rent the place up until then and when settlement takes place I would obviously inherent the tenants which we have agreed to screen together.

Here’s my dilemma:

I would like to get in there and touch the place up a bit because I believe I could get an extra 10 dollars a week rent (Every penny counts). He has agreed to have it vacant for a week for the necessary improvements. Remember folks, my aim here is to make the place more marketable for tenants when it is opened for inspection. I guess what I am trying to say is that whilst I have bought IP’s before, I have not done it under this current arrangement and it just seems weird/awkward going and fixing the place up (myself) between the exchange of contracts and settlement. The improvements are definitely not major but one of the things I want to do is put a mirrored built in wardrobe in the master bedroom and I fear that if something should happen between exchange and settlement, what happens to the wardrobe and any other capital improvements?? Can they legally take possession?

I would welcome ANY suggestions on this matter

Many Thanks


John_P
 
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Reply: 1
From: Property Investor


John,

It seems to me that if you go ahead with the delayed settlement certain things could go wrong:
1. The tenants will be picked by the vendor and because he/she has already made the sale, he would not care what sort of tenant he/she will let the property out to. Since he isn't interested in your settlement money, but interested in receiving a rental income.
2. What sort of condition would the property be in once you take over?
3. How much in repairs would you have to fork out?

As I see it he has too much to gain and you too much to loose.

Why not let him do what he suggests but reducing the sale price for you at the same time, so it's a win win situation?

This is just my opinion.

Mannie.
 
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Reply: 1.1
From: Gail H


The risks mentioned are definitely there, but something like that happened to me once and it was all fine (although I was the vendor).In my case, I sold a flat to an investor (I was not an investor then) and he asked for permission to upgrade the flat and find a tenant before settlement. I simply got a portion of the rent before settlement (but had no input into the tenant selection).

I think its reasonably common, and I wouldn't push the panic button too much. Get anything in writing that you're unsure about, and go with your instinct re trustworthiness of vendor (as a lawyer I should be shot for giving that advice, but it seems to me in life we end up doing this quite a lot). Remember, get written permission, and put in writing any aspects that you want clarification on.

Frankly, I'm more worried about the choice of mirrored wardrobes??!!

Good luck

Gail
 
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Reply: 1.1.1
From: John P


Hi Gail, thanks for that, this gives me a bit more piece of mind. Let me ask you one more question if I may. If I DO put a built in wardrobe into the bedroom before settlement (at least $1,000), what kind of document can I get the vendor to sign that would enable me to get it back if something goes wrong before settlement. I know I keep harping on the wardrobe thing but I KNOW that it will make a big difference to the overall rentability of the unit.

Regards

John_P
 
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Reply: 1.1.1.1
From: Gail H


Hi John,
I'm thinking something quite simple like - "in exchange for agreeing to a later settlement, the vendor undertakes to repay the purchaser the costs of improvements to the property, in the event that the sale of the property is not completed, and such failure is not due to the fault of the purchaser."

The last bit is to stop the vendor panicking.

I should mention that even without this clause, in my view you would have a basis for suing for the costs of improvements to the land on the basis that the vendor would be unjustly enriched at your expense.

Finally, this advice is not meant to be relied on as professional advice, as I don't know all the circumstances and facts. These are general comments and for professional advice, you should consult a legal practitioner who specialises in conveyancing (I'm not a conveyancing lawyer).

Good luck

Gail
 
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