[RANT] Tenants breaking lease because of sale (completed)

I don't have a question or even a serious complaint, just talking to people who might have been in the same situation.

The law allows for a tenant to break their lease with 2 weeks notice and no fee if the property is put up for sale. While I didn't know this when I bought as a new landlord, it wouldn't have surprised me if it had happened at the time. It seems like a reasonable clause considering the inconvenience to the tenant.

Now.... it's 4 months later, the trauma of showing the house must be gone, the tenants must be fully settled in with the new PM, and yet it turns out they still have this right. Worse, it's more like 1 weeks notice of the loss of income to me, because the PM wasn't aware until a week after they notified, that I wouldn't be getting a break lease fee.

Tip for young players buying already tenanted property I guess.

 

Rules vary between states... Where is your property?

@D.T. Has a tenancy tip that might be relevant.

Tenancy Tip Thursday - Selling an investment property

 

It's in NSW.

 

@PMQ ,

That's really unfortunate for you. Thanks for posting! I certainly didn't know of this. Buying a leased property, you would expect that the tenant stays for the remainder of the lease.

 

In South Australia tenants are held accountable to the term of the lease if the property is advertised for sale after the first 3 months of the lease agreement. All break lease costs apply even if it is put up for sale.

 

Sorry to correct but its 2 months under SA legislation

@PMQ the tenant can break the lease within 14 days if the property is put up for sale and they were not notified in NSW correct. But the lease contract at that time was with the vendor not you. They would have no right to break the lease formed with you based on the sale clause, the contract with the vendor ended at settlement. Get your PM to put this to bed.

 

@PMQ Pretty much as @DaveM notes. Refer to S100 of the Act - the right to break the lease only arises IF the the contract for sale of the premises was in existence before the tenant signed the lease & the letting agent was aware of the contract of sale but did not disclose it (S26 of the Act). Then, the tenant would have the right to repudiate the contract on 14 days minimum notice.

• I would query the ability/knowledge of your agent/PM - why would they not have referred to the legislation
• Is the lease expiring if you have held it for 4 months already + the settlement period + the time on market
• Why did it take the agent a week to inform you that they had served notice to terminate?

 

Not sure where you are getting that. The only requirement in NSW is that the property is placed up for sale and the tenant wasn't aware before signing the lease that it would be put up for sale. it does not matter if the owner was intending to sell the property before the lease or didn't make the decision until half way through.

 

@Zepth - that is THE legislation not some p!$$y interpretation by an uninformed pm who has been in the industry for less than 5 minutes. If I don't know, I will go to the source or rely on the REIA team.

It is a requirement that the contract for sale is prepared and the agent is aware as well.

 

section 26 is completely separate to section 100 though which was my point.

Not sure what you mean by uninformed PM in the industry for 5 minutes if you are referring to me(not a pm and never suggested to be one) or the pm advising the OP.

Section 26 merely deals with agent's duty of disclosure before a lease, nothing in section 100 mentions the landlord's intentions before the lease.

edit: actually it looks like the wording has been updated so it does mention s26, but imo it makes it even less vague now
"that the landlord has notified the tenant of the landlord’s intention to sell the residential premises, unless the landlord disclosed the proposed sale of the premises before entering into the residential tenancy agreement as required by section 26,"

As far as PMQ's situation goes though, if it is 4 months after the property has changed hands I don't know that this would still stand, the property is no longer for sale and the tenant is no longer being inconvenienced by the sale process which is the whole intention of the legislation. It would certainly be worth getting professional advice if you wanted to pursue it

 

@Zepth - not suggesting that you're an agent or a PM, I worked that out before you changed feet.

From S26 (2) Disclosure of sale, mortgagee actions
A landlord or landlord’s agent must disclose the following to the tenant before the tenant enters into the residential tenancy agreement:(a) any proposal to sell the residential premises, if the landlord has prepared a contract for sale of the residential premises,(b) that a mortgagee is taking action for possession of the residential premises, if the mortgagee has commenced proceedings in a court to enforce a mortgage over the premises.(3) Subsection (2) does not apply to a landlord’s agent unless the agent is aware of the matters required to be disclosed.

Furthermore S100 deals with compensation to the landlord and refers to S26.

S98 Grants tenants the right to terminate on notice for breaches of the agreement.

100 Early termination without compensation to landlord

(1) A tenant may give a termination notice for a fixed term agreement on any of the following grounds: ...(c) that the landlord has notified the tenant of the landlord’s intention to sell the residential premises, unless the landlord disclosed the proposed sale of the premises before entering into the residential tenancy agreement as required by section 26

Termination by the tenant beyond settlement four months on would not be upheld if the landlord took it to tribunal. Although there is nothing in the legislation to time bar the right to terminate (at first glance), the tenant would seek to terminate once they become aware of the sale not 4 months into the ownership by the OP.

If the breach was caused by the action of the previous agent or landlord then the OP may also have a claim for a pre-existing breach against these parties.

When I require the assistance of my industry body's legal team, I contact them for advice.

@Zepth, you may be out of your depth on this one.

 

firstly I agree with you regarding the 4 months after settlement would not be upheld and I think it is ridiculous the tenant is even trying it on.

But i still dont agree that a section 100 termination requires the landlord to be intending to sell the property before the commencement of the lease in order to apply. I believe the only things that are relevant are the two questions. Has the tenant been notified of the landlords intention to sell the property? If Yes then was the tenant also notified of this intention under section 26? If no then tenant may break without penalty.

The fact that the agent was not aware of intent to sell and therefore did not notify under section 26 doesn't really come in to it.

 

S100 is specifically about disclosure giving rise to the right to terminate. Which part of S100 (1) (c) did you miss?

If there is no contract of sale prepared prior to leasing the property the is no breach or claim which can made against S100. If this is the case, then S26 does not apply.

Why would an investor seek to limit their sales market by leasing just prior to listing unless they've achieved an advantageous rent or their circumstances have changed unexpectedly?

 

@Scott No Mates I don't believe your interpretation is correct. s 100 is the clause giving rise to a right to terminate on the part of the tenant. s 26 is a clause that limits that right, and says the tenant's right to terminate doesn't arise if there was a disclosure at the time of leasing.

But there can still be a right to terminate if there was no contract of sale prepared prior, e.g. the most typical scenario: the landlord notifies the tenant that they intend to sell the property (and there has been no s 26 disclosure).

 

@Perp - that's under a S98 right to terminate for a breach by the landlord.

 

Plenty of reasons, the investor might not want to pay the holding costs of a vacant property while trying to sell, it might be 6 months in to the lease when the investor's circumstances change and they need to sell where they thought they wouldn't need to etc

The purpose of the legislation is to give tenants some protection from the massive disruption being a tenant in a house for sale causes. My Google-fu is lacking today but there have been actual case studies that have gone the tenant's way, the previous wording of section 100 was more vague though.

You could probably dig up some old somersoft discussions to find where the case studies were linked but I really can't be bothered right now. Happy to let you go on believing what you do, just get good advice if you ever need to rely on it in the future, and probably from a less biased source than REIA.

 

No, it's not. This is a s 100 right to terminate in the absence of a breach. It is not a breach of the agreement to advise the tenant that you intend to sell the property.

 

Hmmm, reading some blogs, it appears that the wording of the Act is intended to be interpreted as @Scott No Mates suggests, but that's certainly not how it reads to me as "not quite yet a lawyer". Is there any case lawyer confirming interpretation?

 

Blog e.g. The Agency | Residential Tenancies Act change provides clarity for landlords

The wording that it sounds like was intended, rather than:

"that the landlord has notified the tenant of the landlord’s intention to sell the residential premises, unless the landlord disclosed the proposed sale of the premises before entering into the residential tenancy agreement as required by section 26"

is

"that the landlord has notified the tenant of the landlord’s intention to sell the residential premises, and the landlord failed to disclose as required by section 26"

Thoughts, @thatbum?

 

Oh i knew a little bit about this stuff as it was happening. I haven't gone through everything that's been said in this thread, but the short answer is "If the landlord didn't notify the tenant of the sale, then the tenant can use s100 to terminate".

It doesn't matter whether s26 was breached or not. It only matters whether s26 was complied with.

So off the top of my head, if a landlord forms an intention to sell after the commencement of the tenancy, then the tenants will always been able to use s100, since s26 can't be triggered in that case.

This was actually case law anyway - cases followed this interpretation before the legislation change, but the change just clarified it somewhat.