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.
Vacant possession vs subject to a tenancy
Vacant possession means the seller must hand the property over empty at settlement — 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.
Fixed-term vs periodic tenancies
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. If the tenancy is periodic, the tenant can usually be given a notice to leave on the ground that the property has been sold with vacant possession, but a statutory minimum notice period applies and it has to be counted back from your intended settlement date. Because that notice period is set by legislation and has been subject to change, confirm the current period and the correct form with your conveyancer before you commit to a settlement date. The practical trap is agreeing to a short settlement on a 'vacant possession' contract when a tenant still has months left to run.
Rent and bond adjustments at settlement
If you buy subject to an existing tenancy, the rent and bond are dealt with at settlement. Rent the seller has already collected for a period after settlement is adjusted in your favour, and the rental bond held for the tenancy is transferred so that you become the party holding it as the new lessor. Your conveyancer works these figures into the settlement adjustments. See common settlement adjustments for how rent and other items are apportioned.
The seller's tenancy warranties and disclosure
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 rent can be increased
Rent for each residential premises comprising the Property may only be increased once per year. This applies even if there is a change in owner and tenant, or if there is no existing tenancy in place for the Property.
Informal tenancies
A tenancy may have been granted in the past 12 months on all or part of the Property on an informal basis, i.e. 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).
The seller's obligations 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.