Where Do I Stand Legally?

[Aussie Assault]

Hi Guys,

I am not much of a poster here, but a daily reader and was after some help please.

I have recently purchased a PPOR which is due for settlement 26th Sept (11 days). I contacted the Agent last Friday asking if I could arrange a visit there tonight, to which he agreed.

In the contract I specifically said that I want the house vacant on settlement to move straight in, as it currently has tenants. Anyway I turn up tonight to inspect the property and he advises me that the tenants are having trouble finding another place to move/rent into, and basically that I have 2 options:

1 - Go ahead with the settlement and rent it out to them until they find another property (which he assures me will only be a matter of weeks at most)
2 - Delay the settlement.

At first I thought 'oh yeah it'd be easier to keep settlement as is and just rent it to them for that time..' But then I got thinking and thought what grounds do I have if they still havent found a house in 2-3 months time? The tenants are both students, so whats stopping them from 'pretending' them to look for a rental until the end of November, whilst in the meantime I am paying off my loan.

I want to know what I can do to delay the settlement due to the terms of the contract not being met? Are any of the additional legal/banking/storage fees covered by the vendor due to their side of the agreement falling through? What happens to my deposit if I say that I want to delay the settlement until the house is vacated, but then the vendor says he wishes to terminate the contract?

Sorry about all the questions guys, but I'm just a bit nervous about it all as its my first property purchase!

To me the money I can save by putting the settlement on hold outweighs the risk of receiving their rent, paying off my mortgage and having to wait however long until they vacate.

Thanks for any help in advance

 

[Aussie Assault]

Adding to this, the guy tenant came home whilst I was there today and said he would start really looking next week for another house, as uni holidays start then. The way I see it, if they cant find a place whilst on holidays then they give up looking and I'm stuck with these students until end of the year! HE certainly didnt fill my mind with confidence.

The other point I left out was that the agent said a property through their agency had come on the market only last week which he thought they would get, but missed out. He stated that there were 15 applicants in only 2-3 days of being on the market. To me this seems like quite a few considering its regional Victoria (Ballarat).

 

[merlin]

In the contract I specifically said that I want the house vacant on settlement to move straight in, as it currently has tenants. Anyway I turn up tonight to inspect the property and he advises me that the tenants are having trouble finding another place to move/rent into, and basically that I have 2 options:

This sounds like a problem for your solicitor to resolve. If you correctly specificed vacant posssession on the contract, then you are entitled to expect it...whilst it's not your problem the vendor (apparently) didn't do his part re: removing the tenants, the legal remidies to 'fix' the situation are very complex.

Go and see your solicitor about the matter. Immediately.

 

[The Y-man]

Get the rental records from the managing agent. If they have an impeccable record on paying on time, then I 'd consider keeping them on (might increase rent too!)


If they are not professionally managed, I'd be inclined to delay settlement.

Either way, you get the beefits of a log settlement or you end up with an IP instead of ppor...

Cheers,

The Y-man

 

[lizzie]

is this property for an ip or a ppor? do you "want" it vacant or not?

firstly, if you have it stated in the contract that vacant possession is required, then it is not your problem to get the tenants out. you can delay settlement until the property is vacant at no cost to yourself. the vendor cannot recind on the contract because he/she signed the contract acknowledging the property would be vacant at settlement.

if anything, the vendor may have to pay you penalities for delayed settlement due to them not being able to complete the contract.

check with your solicitor/conveyancer that the vacant possession was in the contract.

if not, then you are obliged to settle on the due date with the tenants still in situ - otherwise you have to pay penalties to the vendor.

 

[weg]

There may be implications if you settle with tenants in it as then you have an IP not a PPOR.

Others may correct me here, but I think it may affect the claiming of the FOBG, and to an extent CGT for the period that they are renting (and perhaps the 6 year rule).

You may consider putting to them that you will accept an extended settlement and a drop in price, otherwise you will demand vacant possession as agreed.

Obviously let a solicitor work out the legalities first if changing the conditions.

You have the upper hand here.

 

[boomtown]

Delayed settlement is financially in your favour as it is interest expense that you do not have to pay.

 

[evand]

At the point of settlement you OWN the property, you strat making payment on your loan and you can do with it whatever you want. Including kicking the students out.

That is just not on, I wouldn't accept it for one minute.

Why didnt the agent give you a third option of sticking to the contract and you having vacant possession at settlement? What happened to that?

Instruct your solicitor to get in touch with the other side with your instructions. If you want them out at settlement, tell your solicitor to notify the other side with that info. Not negotiable.

Don't listen to the agent the contract has nothing to do with him. They like to think it does, but it doesn't, his job is finished.

One last point, if you do let them stay. Get all relevant parties to put an agreement of some sort in writing. No wishy washy verbal stuff. That's how they will stay there forever.

 

[Aimjoy]

In the contract I specifically said that I want the house vacant on settlement to move straight in,

If your contract says you are buying with "vacant possession" then it is up to the vendor to deliver it that way to you before you authorise settlement.

Avoid the existing tenancy at all costs IMHO - its a minefield.

You don't give a damn HOW they (vendor, agent & legal ppl) do it - but that's their problem. You'll be surprised how swiftly the vendor moves to make things happen so he can get his settlement monies if he knows you don't buy their tactics.

 

[Simon]

Don't settle with tenants.

It will mess up your CGT exemption.

You are better to delay settlement and keep the home at today's price until it is empty.

Their solicitor knows they need to get it empty - I am sure if they offered the students $1000 "moving cash" then they'd find somewhere.

Cheers,

 

[SupaRex]

Not trying to hijack this thread as I believe this is relevant, but, if you own an IP and have tenants in it on a 12 month lease and then want to sell six months in, can you break the tenant lease? Are there penalties? What's the go?

Cheers.

 

[boomtown]

Not trying to hijack this thread as I believe this is relevant, but, if you own an IP and have tenants in it on a 12 month lease and then want to sell six months in, can you break the tenant lease? Are there penalties? What's the go?

Cheers.

You cant in Qld as far as I know. But as noted above theres no reason you cant offer them $1k to go away.

 

[silversands]

I was under the impression that in S.A. a ll would have to give the tenant 4 months notice in writing, but even as I am writing I cannot remember why on earth I am under this impression. Xenia, Where are you?

Jodie

 

[jagmcmanus]

This is what your solicitor is for.

 

[evand]

Boomtown, we seem to be disagreeing a bit lately

Its in the contract for vacant possession. Why should he offer money for the vendor to fulfill his contract obligations?

How the vacant possession is achieved is not the buyers responsibility as he doesnt own the property at that point. He only owns it at settlement and it will be empty at that point as per the contract. Nothing else is relevant.

Am i missing something here?

You cant in Qld as far as I know. But as noted above theres no reason you cant offer them $1k to go away.

 

[tubs]

Boomtown, we seem to be disagreeing a bit lately

Its in the contract for vacant possession. Why should he offer money for the vendor to fulfill his contract obligations?

How the vacant possession is achieved is not the buyers responsibility as he doesnt own the property at that point. He only owns it at settlement and it will be empty at that point as per the contract. Nothing else is relevant.

Am i missing something here?

I think Boomtown was replying to Suparex's question about getting tenants to leave if you want to sell. Thus the cash offer.

 

[evand]

Sorry about that. It was a bit early and the coffee obviously hadnt kicked in yet.

I thought he meant as the buyer to pay out the tenants to leave. I can now see he meant the vendor...ok thats cool. Its got nothing to do with the buyer how they get out.

I think Boomtown was replying to Suparex's question about getting tenants to leave if you want to sell. Thus the cash offer.

 

[Petal]

Avoid the existing tenancy at all costs IMHO - its a minefield.

AA,

Read this part of Aimjoy's post 20 times then read it again, then take notice of it!!!!

We were in the same situation when we settled on our PPOR back in 2002. The tenants had 2 months notice to leave but the day before settlement they were still in here jigging around and the agent said. "Don't worry just settle tomorrow and the tenants will be out by next week" My husband said to the agent, "either you are the stupidist man in QLD or you think I am" !!

We made the agent stay with us at the property at the settlement time and the tenants were legally off the property 1/2 hour before settlement and if they wern't our solicitor was on standby for instructions on whether to settle or not.

There is NO way you should settle with the tenants, they will be YOUR problem then.

 

[Toothman]

We're in a similar situation at the moment but we accepted settling with the tenants still there (settlement on 26th as well). The laws are different in VIC but in NSW you cannot terminate a fixed term tenancy agreement just because you are selling a property, it was up to us if we wanted to buy the place with the tenancy agreement in place (which we did). It looks like in Victoria that you have to give 60 days notice to vacate if a property is to be offered with vacant possession even if a tenancy agreement is in place (the vendor should have done this already). Otherwise you will have to give the notice once you take ownership; further details here: http://www.consumer.vic.gov.au/CA256902000FE154/Lookup/CAV_Publications_Renting/$file/endingtenancy.pdf

You have to check that the vacant possession requirement is in the contract, sometimes solicitors may put a clause in stating that anything said verbally is not binding unless it is written into the contract so check that. You'll also have to check that there aren't any clauses relating the vendors responsibilities when delaying settlement, bottom line is speak to your solicitor. Also, if you decide to settle with the tenancy agreement still in place then speak to your account regarding the tax implications. My accountant has advised me that we can nominate our new property as our PPOR even though it is rented out (there are other factors in our situtation) as we are going to rent out our current PPOR

Good luck!

Hello to everyone as well, this is my first post!

 

[wylie]

Big welcome Toothman .