Property sold, tenant difficult

[Mirv]

Hi there,

have a situation unfolding at the moment. We have sold a tenanted IP with six months to run on the lease, the tenant has been rather difficult and gave notice that they were leaving. They left the house with one month's notice...they believe they do not have to pay any more rent as the house is now under contract and we did not try to relet the property as we had an interested party (the subsequent purchaser) from early in the process.

The house in in QLD; from trying to decypher the Residential Tenancies Act 1994 I can't see why they would have grounds to come to this conclusion. Am I correct in believing that, as signatories to the fixed term contract, they must honour it, even though we made no attempt to find another tenant (as we had a buyer who was happy to move in after settlement)?

Of course, if the tenant wished to stay in the house after the sale, they are protected in the lease to do so. Does it not work both ways - I sell the house, but they are obligated to fulfill the obligation to the lease agreement until the lease ends or until a mutually agreeable time?

Thanks in advance for any sage advice....

Mirv

 

[yo yo ma]

We have sold a tenanted IP with six months to run on the lease, the tenant has been rather difficult and gave notice that they were leaving. They left the house with one month's notice...they believe they do not have to pay any more rent as the house is now under contract and we did not try to relet the property as we had an interested party (the subsequent purchaser) from early in the process.

They do have to honour the lease unless it is mutually agreed in writing.
See these FAQ from the Qld RTA.

Am I correct in believing that, as signatories to the fixed term contract, they must honour it, even though we made no attempt to find another tenant (as we had a buyer who was happy to move in after settlement)?

You are correct but what did you agree to do?

Of course, if the tenant wished to stay in the house after the sale, they are protected in the lease to do so. Does it not work both ways - I sell the house, but they are obligated to fulfill the obligation to the lease agreement until the lease ends or until a mutually agreeable time?

Read p18 of the RTA guide to renting a home as it deals with selling. I am a bit confused, as you initially stated that they had "left the home" but then you said "if they want to stay"... Has the tenant left or not? Do you have a property manager?

 

[Perp]

I suspect there's no property manager involved.

Mirv, yes, they are bound to a fixed term lease and can't give notice.

But that's dependent on you fulfilling your side of the deal and allowing them to continue to occupy the property. Does your contract for sale specify "vacant possession"? And if so, then you've effectively breached the lease yourself, and thus they won't be liable for any more rent.

 

[Mirv]

Thanks for the words of wisdom so far. I do appreciate it.

To clarify, yes there is a PM. The tenant has actually gone already, they decided to up stumps in a huff pretty much as soon as they were notified we were selling.

The house is under contract at the moment; contracts were exchanged after the tenant unilaterally walked out, so it is a vacant possession by default.

With regards to what we agreed to...we didn't agree to anything! They have gone, and we are in the process of "negotiating" with them through the PM what their outstanding liability is. I'm pretty peeved at their dummy spit and unilateral action. I'm pretty easy going but as far as I see we entered a contract, and I shouldn't be out of pocket because they have decided to walk out. If they didn't want to leave the property would have exchanged owners with tenants in situ for the remainder of their lease.

Any more comments welcome!

Cheers,
Mirv

 

[GoAnna!]

The tenant may be correct in that you did not advertise it for rent when they left. They gave you one month's notice so you had ample time to replace them? Is there some reason why you did not? If you wanted a tenant then why not just replace them until end of lease?

 

[Perp]

I'm not sure why the tenant was cranky that you were selling - because they didn't want inspections, or because they were concerned that they'd have to move? Or something else?

In any case, if you're now wanting to hold them to the lease, you must ensure that your contract of sale indicates "tenanted investment", regardless of whether they're physically there or not. They still have a valid lease and thus right to occupy; it's the same as if they were on an extended holiday. If you've indicated "vacant possession" on the sale contract, it means that from a legal perspective, you're agreeing that the lease has terminated, and therefore they can't be held liable for rent for the 12 months. You may be able to argue that the lease terminated at some point between their departure and settlement, but I'm not sure how you'd prove when that was.

If you insist that the lease holds, how do the new purchasers feel about these tenants possibly moving back in again? And purchasing with a tenant who's in arrears?

I think that from a pragmatic point of view, and provided the new owners are happy not to have tenants, I'd tell the tenants (through your PM of course) that they are obliged to pay rent until the end of the lease, and that you've sold the property with the lease in place. You and the new owners agree that both of you will be pursuing the full rental arrears, and reporting them to tenancy registers for failing to abide by the lease conditions. Finish up by offering that if they agree to pay rent until the date of settlement, you'll agree to release them from liability for the remaining term, ie agree to terminate the lease on the date of settlement.

Not sure if it'll work, but I'd send this letter and see what happens. If that doesn't result in them coughing up, I think I'd write it off.

Can you claim against your landlords insurance?

 

[Mirv]

Thanks for the comments so far, always thought provoking!

I understand from the PM the tenants cracked it as they were quite settled in the house and did not want to move. I believe they also found the timing not to their liking as it was initated over the Christmas break. With out sounding heartless, I have been a tenant myself, these are the risks associated with renting.

The tenant gave written notice they were leaving, with a date of one month after notice - very shortly after that we entered negotiations with an interested buyer (which was successful). Because the tenant had given notice at this stage already, the purchase negotiations proceeded on the basis that it was a vacant possession - a fait accompli as the tenant had given notice.

Also, given we entered negotiations very shortly after the tenant gave notice, we did not seek a new tenant, as the buyer was happy for vacant possession.

As I see it (and as reflected in some of your posts), the only argument the tenant has is we did not seek new tenants. But why would we? After their unilateral action, we almost immediately entered negotiations with a buyer who was happy for the now obvious vacant possession.

Ozperp, I hear what you are saying about the contract reflecting a "tenanted invested" rather than a "vacant possession", and that's certainly what would have transpired if the tenant had none put their notice in in a huff and walked out. The "vacant possession" status is a result of the tenants action! As I said, the buyer negotiation around the time of their departure, so it naturally turned to a vacant possession.

If the purchase negotiation was unsuccessful, we would have sought a new tenant and have the now ex-tenant pay rent only until the new tenant moved in. However, the purchase negotiation was successful, so therefore I would think it not unreasonable for the tenant to fulfill their rent obligation to the settlement date.

Lots of considerations I guess, it always makes property investment interesting! Thanks for your thoughts, they are always greatly appreciated.

 

[GoAnna!]

As a vendor you were in the enviable position of being able to sell the property as under lease or vacant as the tenant leaving gave you both options. You could have held the tenanat to the contractural obligations and immediately advertised the property at the leased rent. You chose instead to sell it as vacant. The choice was yours not the tenants. By selling it as vacant you effectvely released the tenant from their obligations. You may also have sold the property at a higher price as vacant if this suited the purchaser (as you suggested)

The tenant did not have the right to release themselves from the lease - they would have been obligated to cover the rent until a replacement tenant was found.