Tenancy Tip Thursday - Selling an investment property

Hiya's

Lets say its come time to sell your investment property that has tenants in it. What are the rules? Who has rights? How many times can opens be held?

Seems to be some confusion around this legislation, despite agents being in operation for a number of years, so lets get to the bottom of it. Ensure your PM is on top of this info too.

First things first - in every state in Australia - if you sell a leased property then the buyer inherits the tenant, the lease and the lease duration, but not the management agreement. There's some exceptions available where a tenant is on a periodic agreement and vacant possession is a term of the sales contract.

Notice to let the tenant know varies a little between states - 14 days written notice is provided before listing the property for sale, aka signing an agency agreement with a sales agent. During this time you can't advertise the property or allow inspections. If you list the property for sale (note list, not actually sell) within the first 2 months of a tenancy, they can exit the lease without penalty if they were not advised of that intention before entering into the lease. In NSW this is not limited to 2 months.

Photography - obviously when you sell a property you want some nice photographs done. This is allowed, but be careful about getting the tenants possessions or anything that would identify their identity in the photos.

Open Inspections - As written about in Tenancy Tip Thursday - Entering the property, doing open inspections comes under the same section of the Act as other types of inspections would. The maximum frequency for this is twice per 7 days at a time agreed upon with the tenant. They have to be reasonable with agreeing on a time and if they're not, you can make them at any time (within Normal Hours - remember that term?) with reasonable notice. Obviously you want their cooperation so the sale goes smoothly, so best to get everyone on the same side Also, the tenant has the right to be home during inspections and also on auction day if selling with that method, but it's probably best for everyone if they're not.

Purchaser's details must be provided to the tenant in writing 14 days prior to settlement of the property. This must include the purchaser's name and the date they must begin paying the new owner from.

Quiet enjoyment is a very general term which appears in every state's Act. This still needs to be adhered to during the sales process.

Fines are applicable for not adhering to the state's tenancy Act when selling a property, often $5000 in SA and varies a little in other states.

Other states vary in their rules a little - i remember in Victoria there was debate over whether there could be inspections by appointment rather then opens. @thatbum , @Lil Skater or @DiligentPM any comments on how it varies in your state?

 

This topic is always a legal nightmare. I generally would advise against landlords trying to sell while there is a tenant in place because nearly all the rights are with the tenant - especially those rights critically important to trying to get the best price for your property.

For example, you can't really force a tenant to clean the premises to any special standard, or even force them to leave for any home opens/inspections.

The rules around what might breach quiet enjoyment are fairly murky and probably more in the tenant's favour that most people realise. For example, there was a VCAT case last year where having home opens were deemed to be a breach by the landlord (as opposed to having individual appointments).

 

Yup, I remember this. Its the one I was referring to at the bottom.

Tenants have loads of rights. Selling once it becomes vacant is probably the best way around it if it can be helped.

 

Yes DT ...back again guys...often get side tracked in this business.

Re: Queensland. If a property is put up for sale within two months of a tenancy starting and the tenants were NOT informed that of the intention to sell the property at the time, the tenant has the option of exiting the agreement with two weeks notice.
The agent is required to send the tenants a FORM 10 Notice of Lessors Intention to sell the property must be given to a tenant before and/or when a FORM 9 Notice to Entry is given to show prospective purchases the premises. A selling agent (the secondary agent) must give a copy of this form to the property manager before entry to premises can occur. This is required every time the secondary agent wants to enter the premises.

The most effective strategy is to build and sustain great working relationships with tenants as this will provide the climate to negotiate entry with the tenant at a mutually convenient time - an agent can enter at any time without notice if the tenant agrees but only at the time agreed to by the tenant.

Once the FORM 10 has been issued (Intention to sell the property) tenants are to be given 24 hour notice to show a prospective purchaser through the premises PROVIDED reasonable time has elapsed since the last entry for the same reason and the tenants have their rights upheld to 'quiet enjoyment' of the property (defined loosely as reasonable peace, comfort, privacy and to be able to make full use of their rented property) - there is value to have a conversation with tenants about what their perception of 'quiet enjoyment' is in relation to what is deemed appropriate and not too intrusive - tenants value being consulted and a part of decision making. There is also no definition of "reasonable time to elapse" hence the criticality of having a strong working relationship with the tenant/s to create a climate of negotiation and mutual respect.

Accordingly, through mutual negotiation and positive dialogue an agreement could be reach that may look something like this - one Open Home per week at a time that works for the tenant and agent and one inspection by private appointment for a well screened prospective purchaser to market the property effectively whilst concurrently enabling the tenant/s to 'quiet enjoyment' and 'reasonable time to elapse between inspections'

Additional strategies to enable a seamless experience for all would be to build a good working relationship with the selling agent to negotiate inspection times whilst working with the tenants to find out what accommodation they are seeking for the future (if they have to move out after the sale) and meeting their needs during this process. Likewise, some agents offer a small reduction in rent during the marketing period (with owner approval) to compensate for the inconvenience - it all works to build cooperation between all parties and achieve great outcomes

 

Sounds pretty similar there, thanks for contributing

 

This reminds me of once when we inspected a block of 3x1s. One was locked and we couldn't access, one was empty and we could look through without issues. But the weird and awkward one was 3 adults living in this 1BR unit. There was a male in boxers (partially) under a doonah on a couch in the living room, one of the other adults was still asleep in the bedroom, and a pot of curry was boiling on the stove. Multiple reasons why having the tenants NOT there would be preferable - for all concerned!