The vendor is renting for 2 weeks after settlement

[goldfish]

Hi all.

I am buying my first house. I am about to exchange contracts but am being held up by a minor disagreement between the vendor and myself.

The current owner wants to rent the house off me for two weeks after the settlement date, as he will then move overseas. I have agreed to this and have agreed to a (what I think is) below market rent per week. Now the difficult part - I have also said that to protect my interests I would need a bond, or alternatively that a small amount of the purchase price ($1500-2500) is withheld until I am sure that the property is left in the same condition as at settlement.

The owner has outright rejected this claiming there will be no problem as he is leaving for overseas the day after the rental period ends... and my solicitor seems to think that is ok... well they are certainly not pushing to get this through. I cannot help thinking that exactly for that reason (him moving overseas) I need to make sure that the house is not left in an unacceptable condition.

I am new to this game, but want make sure that I am not left exposed in this situation, does anybody have a suggestion to how I can protect myself?


I really appreciate your help as this is all we need to resolve to exchange contracts.


Cheers,
GF

 

[Twitch]

Just delay settlement by 2 weeks, that solves your problem does it not? Agreeing to renting the house for 2 weeks is a mistake. Vacant possession is far better.

 

[goldfish]

It was a condition of the sale that the owner could rent the place for two weeks after settlement. I am assuming (but I may be wrong) that it is in order for him to sort out his finances before leaving the country.

I will ask if we can just delay the settlement instead.


GF

 

[Perp]

I don't think that you should agree to let the owner continue to occupy without protecting your interests.

I imagine the other party's concern is the time taken by RTA to process bond refunds etc, in which case you could make it a private arrangement. Get your solicitor to hold the $2K, do an inspection on the day he vacates, and immediately release it. I think it's a legal requirement that bonds are lodged with the RTA; so don't call it a rental bond, treat it as an amount withheld from settlement to ensure the property is handed over in satisfactory condition.

If the other party won't agree to that, then I'm with Twitch: delay settlement for two weeks and get vacant possession. Or tell them you need vacant possession and they'll have to find somewhere else to live for two weeks.

My proposal for simplifying the whole thing: don't charge rent at all; go for a decreased purchase price instead. If you're charging rent and they're a tenant, that could create all sorts of undesirable legal obligations. Instead just make it a settlement with delayed possession, reduce the purchase price by $500-1000, and withhold $2 000 of the vendor's funds until possession has been given.

Ask your solicitor what actions you should take to protect yourself during this two week period, with respect to insurance etc.

 

[goldfish]

Thanks Tracey,

You have confirmed my concerns, and I will keep pushing the issue.

We initially suggested withholding an amount until the owner vacates the property, but the owner has not agreed to that.

I will put it to them again, with the alternative of delaying the settlement for 2 weeks and vacant possession.


GF

 

[Peter_Tersteeg]

The vendor probably doesn't want to delay settlement as they might need the money for whatever they're doing overseas. Delayed settlement would be the easiest solution for yourself though (assuming the vendor agrees to do so without penalty interest).

Speak with the vendor directly if you can. There might be a more effective comprimise like releasing the deposit immediately. You're entitled to a bond, but they're probably worried it'll be $1500 they'll never see.

You could write them a cheque for $1500 dated the day they move out. Cancel the cheque if the property isn't up to scratch.

Realistically though, I'd try get to know them a little, rely on the better part of human nature probably not worry about the bond, then kick myself if I got burned.

 

[wylie]

In Queensland you can have the bond reimbursed at the post office the day the form is handed to him (even on a Saturday morning), so he would not have to wait. Not sure about other states.

I would want some bond. Probably no risk involved, but if he does damage something, you have nothing at all.

 

[Collector]

As a real estate agent I have seen this before; the vendor will remain at the premises after settlement "under licence"

Under licence = an agreement (1 page document) drawn up by the solicitor and sign both both parties.

This is rare but not unusal.

I would be seeking that an amount equal to 8 weeks rent is retained in the agents or solicitors trust account until a possession is given.

Before doing any of this check with your mortgage provider and insurance company - they may have conditions that prohibit this type of agreement.

 

[goldfish]

So it may not be feasible to do because the mortgage provider might not accept it?

Re insurance.. that was one of the next things I was going to sort out. As the property is under a body corp. building insurance is through them, but I assume that I will still need to take out some cover for the inside to cover the period after settlement where the current owner lives in the house (even though it will only be 2 weeks)?

So I still need to check with the insurance company that the body corp uses?

Sorry about these questions, but I really don't know anything about these things.

GF

 

[Perp]

Re insurance.. that was one of the next things I was going to sort out. As the property is under a body corp. building insurance is through them, but I assume that I will still need to take out some cover for the inside to cover the period after settlement where the current owner lives in the house (even though it will only be 2 weeks)?

What you need to protect yourself from primarily is the actions of the occupant. I would agree that the former owner is highly unlikely to vandalise the place, but they may have an accident. You need to ensure you are covered, for example, if the occupier leaves something in a common area that somebody trips on and hurts themselves, or if they inadvertently leave the taps on and damage the property downstairs. I'm not sure whether you need landlords' insurance, or, if you go the road of allowing the vendor to stay past settlement without creating a landlord-tenant relationship, you may just need to check that your "standard" insurance covers you for potential liability arising from the vendor's actions during this period.

I would ask these kinds of questions of your body corp insurer, yes. I suspect you'll also need your own insurance, but I have very little experience with, and knowledge of, body corps.

 

[Bradsdad]

In regards to the insurance issue I a aware that for contents insurance you would not be covered as you have given them access to the property.
I appreciate that it's not the contents you are concerned about as it's the vendors contents there at present. I would however assume there would be a similar clause as you have given them access whilst you have possession,I would suggest contacting the body corp insurance company as already mentioned.

Witholding $2-3k until they walk out the door should be no issue to the vendor. just state that it will be paid in cash once he hands over the keys. He then doesn't have issues with having to have a cheque cleared as he can just exchange it at the airport or go to a bank and purchase some travellers cheques.


Regards
Steve

 

[goldfish]

Hi all

Thanks for the replies. I have now sent my solicitor another email stating the options that I am willing to accept. So far I feel that my solicitor hasn't really been working for me, but rather just accepted that the owner doesn't want to agree to any of the terms. Asking me if I really am sure that I want to push for this...

So I have given the following options to my solicitor

-subtracting 2 weeks rent for purchase price, withholding $2400 until I have inspected the property the day they vacate it, and it is in a satisfactory condition.

-Alternatively I am happy to change settlement date to two weeks later with no rental period (which is my preferred option)

-Thirdly I have suggested keeping the original settlement day, and that the current owner doesn't rent my property but spends the 2 weeks rent on a hotel/motel instead which would probably give him 4-5 nights.


Insurance.. well I guess I need to talk to the body corp's insurance company.

It will be interesting what my solicitor actually comes back with.

GF

 

[goldfish]

Update

Hi all,

Thought I should give everybody an update on what happened in my case.

We exchanged just before Christmas after the owner had agreed to an amount equal to 8 weeks rent was withheld at settlement, and released to him once a satisfactorily inspection was made at the end of the two week rent period.

So settlement happened yesterday... Woohoo..!!!

Thanks again for all your replies to my questions.

GF

 

[Collector]

Congratulations!

Good luck with your new home, I am happy that it all turned out good for you