License agreement or Tenancy agreement?

Hi All,

I’m just about to settle on an IP and the vendor wants to stay on for a couple of months and rent the place back. My solicitor has advised this means I need a licence agreement rather than a tenancy agreement. My property manager disagrees.

Has anyone got any experience of this and if so can you share your thoughts?

Thanks

 

No. But I wouldn't do it. I would not want the previous owner living there once the paperwork is signed. A nice clean break would be my aim.

The risk with this is that now you own the property maybe they do not look after it. They would also be likely to then hit you up for any issues you did not know coming into the sale.

 

Well only one out of the two advisers is qualified to give legal advice...

...tough call...

 

Agreed but I’m not sure of the quality of the advice...as i can see from your avatar you are aware of some qualified professionals who maybe don’t always give the best advice

 

I'd do neither. Extend settlement a bit if they need longer.

 

Just ask the lawyer 'why?'

A licence agreement gives someone the right to be on the property, doesn't give them a right of possession.

The residential tenancy act won't apply to a licence agreement (probably) but will apply to a lease and there are statutory minimum lease periods. If a lease you may not be able to get them out for 6 months or more.

I agree with DT though. What benefit is it to you to allow them to stay?

 

Well full disclosure, my avatar has more to do with the fact that I am a practising solicitor. My general thoughts are in agreement with some of the others - why would you even want the owners to stay after settlement.

But if its a license vs tenancy issue - that one is more one sided - what possible advantages would having a tenancy have over a license? I can't think of any off the top of my head.

Normally I'd say "get your own legal advice obviously" - except it seems you already have... you might just need to listen to it, or ask them the questions if you have any.

 

You mean license to occupy?

 

The bond??

 

Thanks everyone for your comments.

In regards to “why let them stay?” - I considered it beneficial to have rental income / no vacancy from day 1. They are long term OO and the house was in really good condition so I considered they would continue to look after the place. They were also willing to pay a slightly higher rent for a short term “lease”. I also thought this would give me time to have home opens etc. and find a longer term tenant whilst the IP was producing income therefore reducing vacancy risk even further.

My main issue / disadvantage with this situation is the fact that i now don’t have a bond to protect me. I’ve been told it “should” be ok as the licence agreement states they are still liable for damage etc. but proving it without a entry / exit condition report will be hard. Also my landlord insurance will not be valid as I need to have a tenancy agreement.

In regard to asking about the advice I was given from my solicitor. I did ask and was basically given the answer that’s it’s just the way it works in this scenario. I asked other property professionals and they all seemed to disagree with the advice I was given and indicated a licence agreement was used when a purchaser wanted to move into a property pre settlement date. Therefore I took the opportunity to ask the question here on the forum to help me make a more informed decision.

 

Never would've guessed

 

There's nothing stopping a lessor asking for a bond as part of a license agreement. It can be as much as you want and it wouldn't need to be lodged either. Because the residential tenancies act wouldn't apply.

The other property professionals sounds like they're giving advice way outside their skills frankly. Which is not surprising, since its legal advice and they aren't lawyers.

 

AFAIK, a licence deems non-exclusive possession, what conditions would determine whether a licence or lease should apply? Can the conditions of the licence contradict the essential terms within the RTA? (you often seen the converse where a buyer is granted early access to refit etc, a licence is justified).

 

I think the main issue is that the RTA doesn't apply with a licence agreement so the terms can be short, they can be kicked out at short notice, and other conditions applied.

 

There's no one determinative factor - its just the character of the agreement. Exclusive possession is just one factor, although often a big one. But so are things like the length of the agreement, and the nature and circumstances of the contracting parties.

If a contract is a bona fide license agreement and not a statutory lease, then generally normal contract laws will apply and parties can put whatever they want into the agreement.

 

I did it the other way around - sold an IP but delays in obtaining subdivision meant I couldn’t settle in time. So I allowed buyer to move in under a licence agreement which terminated on settlement.

I kept building and contents insurance while occupying until settled.

 

I have allowed a buyer to move in under licence as well before settlement which is a bit dangerous but worked out OK.