Legal Tip 383: Life Tenants and Rents

Discussion in 'Wills & Estate Planning' started by Terry_w, 15th Mar, 2022.

Join Australia's most dynamic and respected property investment community
  1. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,667
    Location:
    Australia wide
    Life tenancies are not very popular anymore, but they once were, and they are still have their uses. A life tenant is someone who receives a right to use a property during their lifetime, but they are not the legal owners.

    The life tenancy treats them as if they were the legal owner but they cannot pass ownership of the property as they don’t legally own it. They won’t have legal title, and they cannot sell the property or leave it in their will.

    But they are entitled to the rent from the property if they rent it out, or if the trustee rents it out. This even includes royalties from a mine.


    Example

    Homer is worried that Bart will lose any property he inherits. So he leaves the property to the trustee of a discretionary trust set up in his will and also grants Bart a life interest in the property. Upon Homer’s untimely death the property will pass to a trustee who will legally own it, but Bart is able to live there as long as he is alive.

    But Bart cannot sell the property. He cannot mortgage it or borrow against it. He cannot pass it on via his will as his interest in the property will disappear before his cremation.

    He can get the trustee to rent the property out though and Bart would be entitled to the rent from the property, Bart might be able to even rent the property himself without getting the trustee involved.

    Note that life tenancies can be granted during a person’s lifetime as well, but this will generally be a CGT event – with an exemption for some granny flat arrangements.


    An alternative to a life tenancy is a right to reside – these do not give any rights to the rent of the property.