KEY TAKE OUTS:
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- What is Vacant Possession?
- What is Subject to Existing Tenancies?
- Understanding the importance of how your Contract should be marked when selling.
- Understanding the importance of how you are purchasing a property.
The way in which you are selling or buying a property is marked on the front page of the Contract for Sale. You can sell or buy a property with Vacant Possession or Subject to an Existing Tenancy. Let’s explore what this means and the differences so that whether you’re selling or buying, you can ensure the Contract is marked correctly before signing it.
Note: if neither box is marked, the words in capital letters apply.
Vacant Possession:
What is Vacant Possession? ‘Vacant Possession’ means that the property is being sold unoccupied by any person and empty of all personal items and furniture.
Generally speaking, if a property is sold with Vacant Possession, it must also be cleared of any rubbish and debris. In saying that, in the case of Nelson v Bellamy [2000] NSWSC 182 the Court decided that despite personal items and rubbish being left on the property, the Vendor had provided Vacant Possession. The Court ruled that the items, including pallets and bricks, didn’t have a ‘substantial impairment’ to the Purchasers enjoyment of the property. For this reason, as a Purchaser, it is important to consider what, if any, rubbish and debris is on the property at the time of initially inspecting it. If rubbish and debris is found, the Purchaser should consider requesting a special condition be added to the Contract setting out that the Vendor will have the rubbish and debris removed from the property before settlement. This makes the expectations of the Purchaser and obligations of the Vendor much clearer.
The Purchaser has a contractual right to complete a final inspection of the property prior to settlement. It is during this inspection that they are ensuring the home is vacant and that the Vendor has in fact met their requirement to provide Vacant Possession.
What if the property has a tenant but the Contract is marked ‘Vacant Possession’?
If you as the Vendor have a tenant in the property and the Contract is marked ‘Vacant Possession’, you will be required to have the tenant vacate the premises prior to settlement.
You will be required to formally notify your tenant that the property is being sold with vacant possession and need them to vacate prior to settlement. Where the tenant is in possession of the property on a continuing agreement i.e. where the residential lease has expired but they remain in the property, you can end the agreement by serving them with a notice. Where the landlord requires vacant possession because of the sale of a property, 30 days’ notice is required. It is important to consider the notice period when determining the settlement period so that you can ensure the tenant will be out of the property before the date for settlement falls due. The notice must contain certain information such as the date the tenant is to move out by and the grounds on which the notice is given and must also be validly served. Your managing agent will be able to prepare and serve the required notice.
If your tenant does not vacate the property prior to settlement, the Purchaser is not required to settle, and you are in breach of a term of the Contract (for failing to provide vacant possession by the settlement date).
As the Vendor, it is crucial to consider the remaining term of the current tenancy at the time of instructing your Solicitor/Conveyancer to prepare the Contract and during the negotiations with the Purchaser. Depending on the nature of the tenancy agreement and remaining term, it may not be possible to sell the property with vacant possession.
What happens if the Vendor has not provided Vacant Possession on settlement?
If the Contract is marked ‘Vacant Possession’, the Purchaser is not required to complete the Contract until and unless the Vendor has provided Vacant Possession. If the Vendor has not provided Vacant Possession by the settlement date, they are in breach of a term of the Contract and the Purchaser can issue a Notice to Complete. The notice period is 14 days. After 14 days, the Purchaser may terminate the Contract.
As the Vendor, it is therefore of the utmost importance that you consider the settlement period to ensure the property will be vacated in time. If you are living in the property, you need to consider factors like your alternate living arrangements and the length of time required to pack up all your possessions. If you have a tenant in the property you should consider the items listed above.
Subject to Existing Tenancies:
What is subject to existing tenancies? ‘Subject to existing tenancies’ means that the property is being sold subject to an existing lease. It means the tenant will remain in the property once settlement occurs subject to the terms of the lease currently in place i.e. the lease terms set out in the lease agreement between the Vendor and tenant remain in force. For the Purchaser, it means that as well as becoming the owner of the property on settlement, you are also becoming a landlord.
As the Purchaser, it is important to consider factors like your intent, what are your future plans for the property, and the lease terms. The lease is attached to the Contract so you can satisfy yourself as to the terms of the current tenancy before you even sign the Contract. The lease will include information like the rent, provisions for increasing the rent and the term of the lease. If you are a First Home Buyer who is receiving an exemption or concession from stamp duty, you should review the remaining term of the existing lease and the notice period required to be served on the tenant when requesting they vacate, given living requirements form part of the eligibility criteria when claiming the First Home Buyers Assistance Scheme. You may need to figure out how soon after settlement you will be able to move into the property. You should also consider whether you want to instruct an agent to manage the tenancy for you.
As the Vendor selling a property subject to an existing tenancy, you must advise your managing agent that the property has been sold prior to settlement taking place. This is to ensure that any rent in arrears is collected prior to settlement, any rent paid in advance is distributed appropriately between you and the Purchaser and they oversee the transfer of the rental bond. The Vendors Solicitor/Conveyancer will prepare a notice to tenant which is in a letter format that notifies them that the property has been sold and directs them to pay all future rent to the new owner. This is provided to the Purchasers Solicitor/Conveyancer once settlement has taken place. The Purchaser Solicitor/Conveyancer would then usually forward this onto the tenant.
Coutts have a team of experienced Solicitors and Conveyancers that can provide you with sound advice as well as guide you through the buying or selling process. For sound advice, please contact our office for assistance.
ABOUT MELINA COSTANTINO
Melina joined the Coutts team in 2010 working as a Licensed Conveyancer within our Property & Conveyancing team, based out of our Campbelltown office. Her commitment to client services saw her progress further and into the role of a Senior Licensed Conveyancer in July 2022.
She graduated with a distinction in the Advanced Diploma of Conveyancing and is accredited with the Australian Institute of Conveyancers NSW.
For further information please don’t hesitate to contact:
Melina Costantino
Senior Licensed Conveyancer & JP
info@couttslegal.com.au
1300 268 887
This blog is merely general and non-specific information on the subject matter and is not and should not be considered or relied on as legal advice. Coutts is not responsible for any cost, expense, loss or liability whatsoever in relation to this blog, including all or any reliance on this blog or use or application of this blog by you.
