Urgent - Purchasing with Tenant

My friend is purchasing a property which they were told has a tenant in it returning a reasonable rent according to the agent. All sounded good, but now we find out the tenant is a friend of the vendor and there is no lease agreement in place. The tenant wants to stay on, but is unsure how long for as they are building but guess it will be at least another 6 months.

What does my friend need to do in order to make sure this tenant is all above board and continues to pay the rent stated by the agent? How do they sign up to purchase this property but also state they want a lease agreement in place so it's all legal?

The reason for the urgency is that the offer has been made and accepted verbally and they are now finalising the paperwork but aren't sure what needs to be done to protect them and ensure this lease is all ok. The other thing is landlord insurance which they will want during this time. That can only be taken out with a lease agreement in place can't it?

Thanks!
 
Until the thing settles if the tenant trashes the place it's the vendor's problem. Yes, getting a lease signed from settlement would definitely be better.

They can put a clause in the contract (assuming they haven't signed it yet) that states the tenant has to sign a 6 month contract at $x with the buyer, or else the vendor has to give vacant possession. Check with your lawyer on the wording. It can be inserted as a special buyers condition.

I was in a similar situation recently, and I put the clause in and the vendor signed it. Tenant was paying 'mates rates' but kept the property very well so I was fine for them to stay on, provided they pay market rent. I think they were paying about $285pw, and I put in a clause saying they have to sign a lease with me for 6 months at $330pw (around market rent), or the vendor gives me vacant possession. The tenant signed a new lease with me.

As always, check with your solicitor re the above, because I'm not taking responsibility for what you do with the info.
Alex
 
Thanks Alexlee, would never make you take responsibility for your helpful advice. :)

They're not as concerned about how long the tenant stays for as it is short term, so they'd even be happy for a month to month lease. I guess they're just worried about signing a contract that isn't vacant possession and without a lease in place. If settlement arrives and the tenants won't sign a lease with my friend, or say they're really only paying $100 less than the agent said, then what happens? Maybe this is something they're just going to have to talk to their solicitor about. I don't want them holding ME responsible either. :eek:
 
Usually a contract will include a section marked 'particulars of sale'. In there, the wording will usually be something like;

sample contract said:
At settlement the purchaser is entitled to vacant possession of the property unless the words ‘subject to lease’ appear in this box: [box]
If ‘subject to lease’ then particulars of the lease are: [box]

So, there needs to be a proper lease in place (with the details recorded on the contract), otherwise your friend is contractually entitled to vacant possession upon settlement.

As Alex suggests though; they should probably get legal advice before signing.
 
I would also suggest you check if you will be covered by your landlord insurance policy if you have a tenant in place on no lease or even a month by month lease.
I reckon once you do that check you will know exactly what to do.
cheers
yadreamin
 
Thanks for the responses. Have advised they add that clause stating that a 6 month lease is to be in place for $x / week (they are happy to go periodic after that). The contract does say 'subject to lease' as James pointed out... it's in the country so they are probably just a bit more laid back about these things. Friends just want to cover themselves and make sure they do it all properly.

I have spoken to insurance company, and they said periodic lease is fine. Sounds like it just needs to have an official lease in place, whether it's 12 months or monthly doesn't matter.
 
I still don't understand why they're ok to go periodic. For example, doesn't loss of rent in landlords insurance require a valid lease with an end date if the tenant does a runner?
 
They're not buying it as an IP, it's a house they want to retire to so they do like the house and the area. The fact it comes with a tenant initially paying good rent is a bonus (as they want to pay it off before they retire to it). But this tenant isn't sure how long she wants to stay for as she is currently building a house but expects it's about 6-7 months away, so there's probably no way she'd sign a 12 month lease so that would mean taking it vacant and then looking for a tenant (is in the country so not sure how long it would take to find a tenant).

They mainly want the landlord insurance to protect them in case these people trash the property (which the insurance company said they are covered provided there is a lease in place whether it's a fixed term or periodic).
 
this tenant isn't sure how long she wants to stay for as she is currently building a house but expects it's about 6-7 months away, so there's probably no way she'd sign a 12 month lease

...is she ?? Have you seen a copy of the executed building contract....or are you relying solely on the word of the agent for this...

I've had residential Tenants pull this swifty on me before to get out of lots of stuff - never again.

My father had the same, "We'll just take 6 months as we are building, not sure how long actually, but we'll be gone soon enough." Dad put up with that nonsense for over 4.5 years, and had very low rents and they conveniently trashed the place on him. One day they saw him walking his dog past, ran out and stated "We're off to Qld tomorrow, won't be back, the 3 boys are going to stay, plus a couple of their mates, (all aged between 18 and 22), and we've checked with the Tenant's Advsory Union - you can't do anything about it."

So much for building - pffft.

Post-script, Dad did nothing about it, lt her dictate terms to him, and the boys actually stayed for over a year, not paying rent and trashed the place. Got them out 3 weeks ago. Caused 40 weeks worth of damage in rent. The 4 week Bond is useless. Insurance company says it's "mis-housekeeping", and therefore uninsurable. Sorry we don't pay out on things like that.


Don't worry, I've slapped Dad around the head and shown him the light. At 73, he shouldn't be suckered into **** like that.
 
aside from that terrible story - why would you take what one particular tenant is paying...?

ALWAYS base your DD on market AVERAGES - not medians - including rental yields!!!
 
Thanks for that story TPFKAD, really opens your eyes as to what low life people there are out there. :(

They're going to insist on an official lease being in place, so do you think they should make it a fixed term rather than periodic? Forgive me, I'm still quite new to all this, but amongst my reading on here, did I see that once that when a fixed term lease ends, you can't force the tenant to sign a new one? That it then becomes a monthly one if they refuse to sign and you can't just kick them out based on not signing? So how would the situation be different then? If this woman is on a periodic lease and rent is up to date (although how do you prove?), then how is that different to any other tenant? My friends don't care if she is there for 6 months, 2 years or whatever, provided she's looking after the place and paying the rent. It's not like they're buying it as PPOR and NEED to move in in 6 months, in fact they'd rather she stay on longer. They're buying it as their 'tree change' house to move into in a few years in their retirement. I guess it's just how do you prove she's a good tenant prior to buying and I guess the answer is you don't?!

There are just so many variables and risks with property, this is doing my head in and it's not even mine! :eek:
 
Dazz,
Your dad should have asked you to manage his property and get those people out.At 73 years of age, he would have been seen as a pushover for this family.
You, on the other hand....you are the Man Of Steel (sheds):)
 
Interesting new development. I've just been told my tenant has decided to break the lease and leave early (2 months into the new 6 month lease). They're up for rent until I find a new tenant at the same rate, as well as advertising fees, etc.

It doesn't make much sense to me, considering it'll probably turn out to be a good couple of weeks rent, and might be a lot more if I can't find a tenant. The increase in rent on settlement was $35pw. So for the 4 months they're breaking the lease by, it would have 'cost' them 35 x 4.3 x 4 = $600. It's likely the costs of advertising and potential vacancy will be at least that.

I don't know why they're breaking the lease, but then, it doesn't concern me.

Nothing prevents them from just doing a runner, of course, but landlords insurance covers that. If they had been on a month-by-month, which they were before settlement, I wouldn't be able to charge them for reletting expenses.

I really don't see why you wouldn't insist on a signed, fixed term lease. If you intend on moving into the property at a specific date, just sign for a specific period (4 months, 7 months, whatever).
Alex
 
My friends are requesting a six month lease be drawn up now. Turns out there is a lease in place between the vendor and tenant, it's self managed though. The lease was a six month lease which ended last year and it's just fornightly now and only 2 weeks bond held.

They are requesting that a formal lease be drawn up by the agent (who is then to manage the property) for six months (and monthly rather than fortnightly with a month's bond held) and that all standard checks are done on the current tenants. We do think it's all ok, but just to make sure we're requesting this. My friends are happy to pay for these costs as they'd be up for them anyhow if they took it vacant possession, so really no reason the vendors shouldn't be happy to do this.

It is a valid point about having a fixed term lease vs. periodic, however as I asked earlier, what happens when a fixed term lease ends, I read you can't demand that a new one be signed... is that true? In that case do you just increase the rent every couple of months until they sign one? :D
 
They are requesting that a formal lease be drawn up by the agent (who is then to manage the property) for six months

Emphasis added by me.

Personally, I wouldn't choose the selling agent as the managing agent. Too much potential for conflict of interest for my liking...
 
It's a small town, so very limited in choice and this keeps it simpler but otherwise I would agree with you. The company is at least part of a large chain, not some independant, so hopefully all will be done professionally. We do feel it's all ok, but this just formalises it all, they can feel confident about it and know they are covered by landlord insurance.

Thanks for all the feedback and advice! My friend had a little bit of a 'I don't want to upset them, it's a small town' attitude and didn't feel so much pressure to attend to this concern until I read them TPFKAD's story. I've read too much on here and seen too many ACA/Today Tonight stories to 'trust' that all is good. :)
 
My friend is purchasing a property which they were told has a tenant in it returning a reasonable rent according to the agent. All sounded good, but now we find out the tenant is a friend of the vendor (WARNING SIGN 1) and there is no lease agreement in place.(WARNING SIGN 2) The tenant wants to stay on, but is unsure how long for as they are building(WARNING SIGN 3)( but guess it will be at least another 6 months.

What does my friend need to do in order to make sure this tenant is all above board and continues to pay the rent stated by the agent? How do they sign up to purchase this property but also state they want a lease agreement in place so it's all legal?

The reason for the urgency is that the offer has been made and accepted verbally and they are now finalising the paperwork but aren't sure what needs to be done to protect them and ensure this lease is all ok. The other thing is landlord insurance which they will want during this time. That can only be taken out with a lease agreement in place can't it?

Thanks!

Dazz's story sums it up. Like John Howard's retirement and hand over of power it never came until after the election. People will stall for time to make a decision when the status quo suits them.
 
As per Alexless and Dazz.

Get a lease included as part of the contract - no if or buts. Not included get vacant possession get the current occupier to move out and they can relet or not. Its not your friends problem.

Each time I have had tenants tell me that they are only going to be there for a short term because of this or that they always, and I mean without fail, become my longest term tenants. The harder they try and convince me how soon they will move on the longer they have stayed.

The converse is also true where tenants start telling you their going to stay for years etc their gone at the end of the lease.

Ignore it all and charge market rates and give no favours.

Cheers
 
Get a lease included as part of the contract - no if or buts. Not included get vacant possession get the current occupier to move out and they can relet or not. Its not your friends problem.

Ignore it all and charge market rates and give no favours.

Done! A proper lease has been drawn up and included with the contract which is the rent they were advised which is definately already market value. Thanks for all the advice.
 
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