THINKING OF BUYING A PROPERTY TO LIVE IN WITH A CURRENT TENANCY IN PLACE – THIS IS WHAT YOU NEED TO KNOW
If you are looking at buying a property to move into, but there is an existing tenancy agreement in place, you will need to either give notice to the tenant to vacate the property, or you will need to agree that the seller will give notice to the tenant.
Tenancy agreements can only be ended in accordance with the Residential Tenancies and Rooming Accommodation Act 2008 (the Act). This includes providing the approved form to the tenant, stating the reason for ending the agreement, and allowing the approved notice period.
From 1 October 2022, landlords can no longer end fixed term or periodic tenancy agreements ‘without grounds’. In its place, a number of additional specific reasons for landlords to end tenancies have been introduced, including:
- a fixed term tenancy is coming to an end
- the property is being prepared for sale or is being sold with vacant possession
- the owner or their relative is moving in
- change of use of the property
- the owner is doing significant repairs or renovation, or
- the property is subject to demolition or redevelopment.
Appropriate notice periods must be given to the tenant where the landlord terminates the agreement for one of the above reasons – being the later of 2 months from the date of notice to the tenant or the end of the fixed term agreement.
What are YOUR options IF THERE IS A CURRENT TENANT?
1. Buyer waits until the property is settled and issues a notice to the tenant to vacate.
This is effectively the ‘status quo‘ option – the new buyer will proceed to settlement and once they take ownership of the property they can issue the notice to the tenant to vacate.
The negative of this option for a buyer intending on moving into a property is that they will have to wait the later of 2 months from the date of notice to the tenant, or the end of the current fixed term agreement. This may also impact a buyer’s ability to claim the home or first home transfer duty concession as existing tenants must vacate within 6 months from the settlement date to remain eligible for the transfer duty concession.
2. Buyer includes a special condition in the contract, requiring the seller to issue notice to vacate to the tenant prior to settlement.
The benefit of this option compared to option 1, is that it will decrease the time that a buyer will need to wait after settlement for the property to be vacated.
If this option is taken we recommend including the following special condition in the Contract to allow you to move into the property as soon as possible:
“The Contract is subject to and conditional upon the Seller issuing the Tenants with a Notice to Leave (Form 12) to vacate the property by [End of Lease date] within [2 months prior to End of Lease date], failing which the Buyer may terminate the Contract and the deposit will be refunded to the Buyer in full.”
Let’s consider a scenario:
- You sign a contract to purchase a property on 1 April 2023
- Settlement will be 15 May 2023
- There is a fixed term tenancy in place, ending 30 June 2023
If the above special condition is included, the Seller must issue a notice to vacate to the tenant by 30 April 2023 (2 months prior to term end). The tenant will then need to vacate by 30 June 2023 (being term end) and you can move in.
Without the special condition, you would need to wait until after settlement to issue a notice to vacate to the tenant. If notice was served following settlement on 15 May 2023, the tenant will then need to vacate by 15 July 2023.
3. Seller to provide vacant possession on settlement
The final option, which is often the best for a buyer who is wanting to move into the property will be to settle with vacant possession.
This option would require the seller to ensure that the tenant vacates to the property prior to settlement. The complexity arises when the settlement date is before the later of either 2 months from the date of notice to the tenant, or the end of the current fixed term agreement.
In this situation the seller would need to obtain agreement with the current tenant to exit the tenancy earlier than required by law, which would often require some form of incentive to entice the tenant to agree.
If this option is agreed, we recommend including the following special condition in the Contract to ensure that vacant possession is provided on settlement.
“Despite the fact that the contract discloses a tenancy, the Seller will provide vacant possession at settlement. Should the Seller fail to provide vacant possession this contract is at an end, failing any agreement to extend settlement, and the Buyers damages shall be limited to the deposit paid herein and shall be refunded without deduction.”
If the Seller is not sure if the tenant will agree to leave early on signing a Contract, the following wording may be used:
“The Contract is subject to and conditional upon the Seller providing the Buyer with a signed written agreement with the tenant to end the residential tenancy agreement early (no later than the Settlement Date) in accordance with section 277 of the Residential Tenancies and Rooming Accommodation Act 2008 (Written Agreement). Should the Seller fail to provide the Buyer with a Written Agreement by 5pm 14 days after the Contract Date, the Buyer may elect to terminate the Contract by notice in writing to the Seller, in which case, the deposit is to be refundable in full.”
