Contracts and Existing Tenancies

Navigating the legalities of Victorian property contracts and the complexities of buying tenanted properties.

Contractual Considerations for Investors

A Victorian property contract is a legally binding agreement that outlines the terms of the sale. As an investor, you may want to include specific conditions, such as a subject to finance clause or a subject to a satisfactory building inspection. However, keep in mind that in a competitive market, unconditional offers are often preferred by sellers. The contract will also specify the settlement date, which is typically thirty, sixty, or ninety days. Ensure the settlement period aligns with your finance arrangements and any plans you have for the property, such as immediate renovations.

Buying a Tenanted Property

Buying a property that is already tenanted can be advantageous as it provides immediate rental income from the day of settlement. However, you must inherit the existing lease agreement and the tenant. Review the lease carefully: how much is the rent, when was the last increase, and how long is the remaining term? You should also request the tenant's payment history to ensure they are reliable. If the property is in a state of disrepair, the tenant may have the right to demand repairs under the Residential Tenancies Act, which you will become responsible for after settlement.

If you buy a tenanted property but want to move in or renovate, you must follow the correct legal procedures to end the tenancy. In Victoria, you cannot simply terminate a fixed-term lease early because you bought the property. You must wait until the end of the fixed term and provide the required notice period, or reach a mutual agreement with the tenant to vacate. If the tenant is on a month-to-month periodic lease, specific notice periods still apply, and you must have a valid reason under the Act, such as performing major renovations that require the property to be vacant.

The Role of the Deposit

The deposit, usually ten percent of the purchase price, is held in a trust account by the estate agent or the vendor's solicitor until settlement. In some cases, a vendor may request an early release of the deposit using a Section 27 statement. As a buyer, you should only agree to this if your conveyancer is satisfied that the vendor has sufficient equity in the property to cover the deposit if the sale falls through. If there is a high mortgage on the property, releasing the deposit early carries a risk for the buyer, and you have the right to object within twenty-eight days.

Adjustments and Settlement

Settlement is the process where the balance of the purchase price is paid and the title is transferred to you. During this process, your conveyancer will calculate 'adjustments'. These ensure that the seller pays all outgoings, such as council rates, water rates, and land tax, up to the day of settlement, and you pay for everything from that day forward. If the property is tenanted, the rent will also be adjusted so that you receive the portion of rent from the settlement date until the next payment due date. This ensures a clean financial transition between owners.

Before settlement, you are entitled to a final inspection of the property. For an investor, this is the time to ensure that the property is in the same condition as when you signed the contract and that any agreed repairs have been completed. If the property is tenanted, the tenant's right to quiet enjoyment still applies, so you must coordinate the inspection through the managing agent. If you discover new damage or issues, you should notify your conveyancer immediately to discuss withholding funds at settlement to cover the repairs.

• Review the existing lease and tenant ledger
• Confirm the bond is registered with the RTBA
• Verify all council and water rates are paid up to date
• Perform a final inspection in the week before settlement