Can I break my DHA lease due to hardship

Hello All,

I own a defence housing property in Adelaide that I have owned for 10 years. This year, the DHA took up the 3 year option which was disappointing. WE have entered some financial hardship and had to place the property on market. For the past 4 months we have had little or no interest due to it being a investor property and the 3 year lease.

Our agent indicated had the property been vacant and no lease, we would have easily have sold to FHB in this current market and probably achieve our price. They suggested we make an application due to financial hardship to DHA to break the lease. We did sell another ex DHA property last year at 80K loss so we have some evidence to support our argument and plea.

Does anyone know how this is done and what are the likely outcomes. I have read my lease agreement and it doesnt really go into the owner of the property breaking the lease , more so the other side adding or terminating the lease. They mention good faith and all exchanges being amicable. Economically,. this would be a huge result if we were able to cease the lease and sell it this financial year.

Any advise or experience or suggestions is really valuable.

Kind Regards.

 

Sorry to hear your news Big Maan. I don’t know about the lease break but the defence force aren’t exactly known for flexibility. Good luck

 

What feedback has the agent provided?

Property has gone stale, the agent isn't marketing the property to investors.

Possibly time to change agents and strategy.

There are plenty of investors out there who will purchase a leased property especially with a govt guaranteed tenant.

Have you approached DHA to buy back the property?

The break clause is not mutual.

 

From the little I know, generally under the respective states' Acts, xCAT can terminate the tenancy if hardship is proven, which is based on the individuals circumstances. Stat decl. from your CPA/CFA may hold strong weight in the decision an Adjudicator might reach. At the very least, cost you very little to try - no lawyers, minimum application fee which may be eligible for discount too due to hardship, etc. Good luck.

 

This is a hard one with a pile of variables. There is a reasonably strong chance that if you were able to provide substantial evidence to the aforementioned, tribunal could agree to terminate the lease in your favour. The question is what evidence does the member you see on the day require to be convinced to rule in your favour.... impossible to know until the day.

I think you're on the right track. You want to;
1. Prove that you're in financial trouble and failure to sell this property at or around asking price in the short term future would place you under serious hardship.
2. Show that the property is much more likely to sell for the necessary figure without the lease in place.

Statutory declaration from the salesperson, possibly a couple more from other agents in the area.... comparative market sales data (tenanted vs vacant), information related to your financial position, etc.

 

I haven't actually seen a DHA lease document - but does it have hardship termination provisions in it?

Isn't it a commercial lease rather than a residential one?

 

More than likely. A 10+3 year lease with obligations to maintain, repaint & red-carpet etc.

 

Hi Big Maan

Just wondering how you went with this problem as I have the exact current issue in Perth.
I owned the home before DHA leased it from me (not a DHA home), now I have separated and lost my other properties and my business thanks to COVID19.
DHA rejected my claim of financial hardship which is absolutely abominable and now I have to take them to court so that I dont have to sell my home as that is the only other asset I have!
I doubt a magistrate would side with DHA when I have two choices....sell my investment property or my home. My estranged husband and I still share the house with our four children due to severe financial hardship inhibits us from going our separate (living cost) ways.

 

Not sure how hardship as a property owner is a issue. You can sell property with a DHA lease. Whether a buyer values the lease is a issue

 

I was thinking exactly the same. If I choose to sell an asset that has a tenant with a current lease in place, then I sell it WITH the tenant. If your Agent is marketing it correctly, they should emphasize the benefits of a government tenant with guaranteed rental returns.

Also, from what I've heard, Perth is starting to heat up again, so there's likely more people looking for investments than previously.

 

Residential mindset? It's so much harder to sell/finance a vacant commercial property than one with a government guaranteed tenant.

 

Thank you to all those who replied.

Hardship is an issue! And they have it in their contract as a viable cause to break contract but up to their discretion, and rejected it because they have no where to place the DHA tenant.

It will be harder to sell my property with the DHA lease in place, as my property in an very good suburb within 4kms of the city and DHA has reduced the rent so much its now $650 per week when the property is valued from $1.1m. The property economy went backwards in 2018 and as a result the rent was reduced dramatically and of course has not gone back up, as also at their discretion.

So it will be harder to sell this house with DHA tenant in it. As no one in their right mind will buy this property with that weekly rent unless they are flush with money and need to lose some.

'they should emphasize the benefits of a government tenant with guaranteed rental returns.' Whilst guaranteed, the amount is not, we found out the hard way, or rent started in the $800s and now its $650 and each year I spend $600 every year getting a property valuer to dispute their reduction.....AGAIN up to them if they want to pay that amount. They tried to reduce to $620 and keep comparing it to property in several suburbs that were outside the city so to reduce it dramatically, and this was the one time they did not reduce it and kept it at $650.

Sorry but in my experience I see absolutely NO VALUE IN DHA AS A TENANT.

 

DHA are a manager. Not a tenant. They do have high calibre defence tenants but they also can rent to others. Owning a DHA property does come with some issues and limits as well as a guarantee and a refit clause. Another main one is they can hand back with little notice aftre terms end (9+3 eg 9 years) and its difficult to terminate them. They call all the shots. And most DHA property tends to be a premium value when new and yet when they hand back it loses that so the owner pays for it. Buying a DHA property isnt wise if you plan to ditch DHA and they make that abundantly clear in their rules. DHA are best held long long term. They can manage the sale of course and another investor will likely buy. They seem to have a few on sale at North Coogee.

If you think Perths bad look at Darwin to compare. They rent out $600K homes for the same rent you have. Darwin at 4.9% yield.
Investment Property For Sale | Defence Housing Australia

 

DHA maybe the property management but they are MY TENANT as I am a private owner, my home is NOT A DHA PROPERTY. DHA is not listed on my certificate of title because again it was my property and they approached me to rent it.

 

Im surprised you cant sell in the current market. There are 80 to 100 people at every open. Its not just first home buyers, heaps of investors looking too.

What feedback has the agent given? Perhaps you are asking too much? A 3 year lease is unlikely to turn off an investor unless there are more lease options to come or its rented under market value.