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Selling an ip while tenants are living in it

Discussion in 'Property Management' started by Darren A, 7th Aug, 2015.

  1. Darren A

    Darren A Well-Known Member

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    Hi All,

    I have an ip which I am considering selling but it will have tenant in it at the time. What are the rules/laws if it sells to an owner occupier while the tenant is still in a lease agreement period? What would I be up for it the tenant has to pack up and leave.

    Thanks in advance.
     
  2. spludgey

    spludgey Well-Known Member

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    The existing agreement will continue. So you can't really kick the tenant out, just because you're selling.

    Having a tenant can be a good thing if your demographic is other investors or it will be a bad thing if your demographic is owner occupiers.
     
  3. Rixter

    Rixter Well-Known Member

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    You would have to give the required legal notice in writing to the tenant to vacate. If they are on a periodic tenancy I cant seen any issues..if a fixed term lease then you maybe able to negotiate them moving on before their fixed lease expires..
     
  4. HUGH72

    HUGH72 Well-Known Member

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    As stated above you cannot kick them out if its a fixed term agreement. I would want to make sure that the rent is at the correct market rent as well. If its the sort of property likely to appeal to investors many investors filter listings by possible yield. If its under market rent its less attractive for potential buyers IMO.
     
  5. Darren A

    Darren A Well-Known Member

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    Thanks for the replies.

    Would I need to give the tenant the required legal notice before the property is listed for sale or once it sells if it was an owner occupier that bought it?
     
  6. neK

    neK Well-Known Member

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    I find the best bargains come from tenanted houses (well at least in Sydney). Hard access, untidy upkeep, items that all frustrate the agent, resulting in a lower price :)

    If i was selling my property, i would kick the tenant out (unless they are an interior decorator) and dress up the house.
     
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  7. Darren A

    Darren A Well-Known Member

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    Yes it is in Sydney, but this would not be the case I would make sure of it because I am the seller!
     
  8. Propertunity

    Propertunity Exclusive Real Estate Buyers Agent Business Member

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    The Residential Tenancies Act specifies what you must do:
    http://www.legislation.nsw.gov.au/xref/inforce/?xref=Type=act AND Year=2010 AND no=42&nohits=y
    "86 Sale of premises(1) A landlord may give a termination notice on the ground that the landlord has entered into a contract for the sale of the residential premises under which the landlord is required to give vacant possession of the premises.(2) The termination notice must specify a termination date that is not earlier than 30 days after the day on which the notice is given.(3) The landlord must not give a termination notice under this section that specifies a termination date that is before the end of the fixed term if the residential tenancy agreement is a fixed term agreement.(4) The Tribunal may, on application by a landlord, make a termination order if it is satisfied that a) the landlord has entered into a contract for the sale of the residential premises that is proceeding under which the landlord is required to give vacant possession of the premises, and (b) a termination notice was given in accordance with this section and the tenant has not vacated the premises as required by the notice."
     
  9. Darren A

    Darren A Well-Known Member

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    Thanks Propertunity.

    Does point 4 mean that if if the tenants are in a fixed term lease agreement at the time of sale and would still be at the time of settlement(if sold to an owner occupier of course) they would still have to move out before the settlement date if an application is put in by the current landlord to the tribunal? Providing of course the tribunal approve the application.
     
  10. Pistonbroke

    Pistonbroke Well-Known Member

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    A fixed term is binding. You can't terminate the lease because of the sale and vp.
     
  11. thatbum

    thatbum Well-Known Member

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    Nope. Read subsection 3 again.

    Really, I wouldn't be selling with a tenant in place unless you absolutely had to. It just limits the potential buyer pool, which will probably affect your sale price.
     
  12. Propertunity

    Propertunity Exclusive Real Estate Buyers Agent Business Member

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    That's right. You need to sell with an "existing tenancy" as opposed to "vacant possession".

    That's generally true, although at present investors are taking out approx 60% of loans for property (excluding refi's). They are normally only 30% of the market, but are now at 50-60% of the market. So, you do reduce your pool of buyers to:
    1. Investors or
    2. Owner Occupiers that will tolerate a tenant for a few months before they can terminate the tenancy and occupy themselves.
     
  13. Darren A

    Darren A Well-Known Member

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    I don't have to it was just an option I was weighing up to free up some money but if I need to I can wait.

    So is the bottom line - NO it cannot be done unless I could come to some sought of agreement with the tenant?
     
  14. Big Will

    Big Will Well-Known Member

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    When does the fixed term end?

    If it is a couple of months you can still appeal to both you will (or REA) will need to communicate with tenant about what is happening and it maybe sold to an investor or PPOR.

    If it is an investor and the rent is BMV then it is only a short term pain for them and a way they can value add. If the tenant wanted to stay on and it was at market rent it is a win for all.

    If a PPOR buyer buys it then there would just need to issues a notice to vacate either during your time as vendor (ending at the end of their lease) and provide vacant possession or let the purchasers know that the lease finishes on x and you can have them leave with correct notice.
     
  15. Propertunity

    Propertunity Exclusive Real Estate Buyers Agent Business Member

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    Correct, you can offer a financial incentive for the tenant to break their lease early and avoid the issue, if they are agreeable.
     
  16. Darren A

    Darren A Well-Known Member

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    I think I understand the situation now. Thanks everybody for their input.
     
  17. neK

    neK Well-Known Member

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    Not sure how you think you can control a tenant.... especially one that knows they are getting kicked out. I've seen the nicest tenants turn in absolute pricks.

    Some things you have no control of
    - Pungent cooking
    - Purposely keeping the house dirty to make it undesirable, but clean enough so you can't do anything about it.
    - Unkept yard and once issued with an order to tidy up, deliberately does it during the open house times.

    I've found the best prices are due to emotional buyers making a "connection". A pissed off tenant can hamper this "connection" considerably.

    One of the properties i purchased (on behalf of my sister in law) had a tenant that wouldn't let anyone in. I picked it up for $475k. Before we even settled, the other half of the duplex sold for $550k.

    I'd go with Propertunity's suggestion of a financial incentive.
     
    Last edited: 7th Aug, 2015
  18. Darren A

    Darren A Well-Known Member

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    I agree Nek, I will wait until the lease expires or work out a financial incentive with the tenant. I am not in a hurry to sell, I might even see some more growth yet.
     
  19. Angel

    Angel Well-Known Member

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    Are these rules about having a tenant on fixed lease the same in Qld? I want to sell with a tenant on a lease until February and the vast majority of buyers would be Fhb.
     
  20. wylie

    wylie Moderator Staff Member

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    The rules are the same in Queenland. We sold an IP a couple of years ago with a sitting tenant. He was a lawyer, so we ensured we got all this in writing. He agreed to break his lease and vacate the property as long as we gave him four weeks' notice. The four weeks would be rent-free.

    He cooperated with all open houses and kept the place neat. It suited him for us to get a quick sale.

    He saved four weeks' rent, we got an empty house. Sold to owner occupiers.

    He was a nice man and wanted to move anyway due to a change in his circumstances, but as we asked him to break the lease, he had the ball in his court.

    It was a win/win.
     
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