In our Queensland practice, the tenancy line on a contract is one of the smallest things to tick and one of the most expensive to get wrong. A property that looks empty at inspection may still be under a lease that a sale cannot cut short, and 'vacant possession' is a promise the seller has to be able to keep on settlement day. Getting the tenancy position and the settlement date to line up is the whole game.
What is the difference between vacant possession and buying subject to a tenancy?
Vacant possession means the seller must hand the property over empty at settlement, with no occupants and no belongings or rubbish left behind, so you can move in or re-let it straight away. If someone is still living in the property on settlement day when the contract called for vacant possession, the seller has not met that obligation and is in breach, which gives the buyer remedies. That is why the tenancy position has to line up with the settlement date before you sign. See the five checks we run on every contract.
What happens to existing tenants when the property is sold?
Where a property is sold subject to an existing tenancy, any tenant occupying the premises remains after settlement completes, continuing to pay rent to the new owner. The new owner cannot move in until the tenancy agreement period ends or the tenancy is lawfully terminated. All terms in the tenancy agreement apply to the Buyer from the settlement date onwards, so Buyers should review the tenancy agreement documentation.
Can a fixed-term tenant be made to leave if the property is sold?
Selling a property does not, by itself, end a tenancy early. If the tenant is on a fixed-term agreement, they generally have the right to stay until the fixed term ends. A sale does not shorten it, and the tenant does not have to accept an offer to leave early. The only way to get the property empty before a fixed term ends is for the tenant to agree, in writing, to hand it back sooner. There is no prescribed Queensland form for ending a lease by mutual agreement, so the parties sign their own written agreement, and a tenant will often ask for compensation to move out early, sometimes called 'cash for keys'. If the tenancy is periodic, the tenant can instead be given a notice to leave on the ground that the property has been sold and the buyer wants vacant possession. In Queensland that notice cannot be given until the contract of sale is signed, and it must then allow the tenant at least two months. Because notice periods like this have been changed by recent rental law reforms, confirm the current period and the correct form with your conveyancer before you commit to a settlement date.
How does the settlement date affect getting vacant possession?
This is where a lot of contracts come unstuck. Because a periodic tenant's notice to leave cannot even start until the contract of sale is signed, and then has to run for at least two months, a short settlement simply cannot deliver an empty property on a 'vacant possession' contract. If you agree to a 30-day settlement while a periodic tenant is still in place, the two months have not run by the day you are meant to move in. In that situation you usually need a longer settlement, or the tenant's written agreement to leave sooner, so line the dates up before you sign rather than after. Your conveyancer can tell you the settlement length that actually leaves room for the tenant to be given proper notice.
What if the tenant hasn't left by settlement day?
A seller cannot physically remove a tenant, and neither can the buyer. If a valid notice to leave has expired and the tenant stays on, the owner has to apply to QCAT for a termination order and a warrant of possession, and only a police officer can enforce that warrant. The process takes time, so it cannot be relied on to clear the property by a fixed settlement date. If the seller cannot give vacant possession when they promised it, the buyer is generally not obliged to complete on a property that is still occupied and may have remedies under the contract. The safest course is not to let it get to this point: get the tenancy position sorted before settlement is locked in.
How are rent and the bond handled at settlement?
If you buy subject to an existing tenancy, the rent and bond are sorted out at settlement. Rent is apportioned to the settlement day: any rent the seller has already collected for the period after settlement is adjusted in your favour, and your conveyancer works that figure into the settlement adjustments. The bond is not handed over in cash. It stays lodged with the Residential Tenancies Authority, and the records are updated so that you, as the new owner, become the party holding it as the new lessor. The tenant also has to be told, in writing, that ownership has changed and where to pay rent from settlement. See common settlement adjustments for how rent and other items are apportioned.
Can the agent show the property while a tenant is still living there?
Yes, but not on demand. To bring prospective buyers through, the selling agent has to give the tenant an entry notice (Form 9) with at least 48 hours' notice, and the tenant has to be given the owner's notice of intention to sell (Form 10) before, or at the same time as, that first entry notice. An open home needs the tenant's written agreement, and their reasonable use of the property still comes first, so access for marketing has to be arranged around proper notice rather than assumed.
What must a Queensland seller disclose about tenancies?
Past tenancies and disclosure
The Seller warrants that the statements in the Contract about residential tenancy agreements and rooming accommodation agreements are true and correct. Even so, Buyers should be aware of any formal or informal tenancies on the Property in the past 12 months, because these may affect the rent recoverable after settlement, and Buyers may have a right to compensation if this was not correctly disclosed in the Contract.
How often can rent be increased in Queensland?
Rent for each residential premises comprising the Property may only be increased once every 12 months. This applies even if there is a change in owner and tenant, or if there is no existing tenancy in place for the Property, because the 12-month limit attaches to the premises rather than to a particular tenancy.
What is an informal tenancy, and why does it matter?
A tenancy may have been granted in the past 12 months on all or part of the Property on an informal basis, meaning no signed residential tenancy agreement and rent charged below market. Such an arrangement may still fall within the definition of a 'residential tenancy agreement' and can therefore affect the rent a Buyer may request for the Property, until 12 months from that prior informal agreement expire (if that was the last rent increase).
What can the seller not do after the contract date?
Sellers should not modify the Property in any way after the Contract Date, including terminating any tenancy in place; otherwise the Buyer may be able to terminate the Contract or claim compensation.
General information only, not legal advice. Tenancy and settlement rules change, so confirm the current position for your contract with your conveyancer before you act.
