Vendor renting out OTP property prior to settlement

Hey Guys,

Bought an OTP a few years back. It is finally approaching settlement.

To receive the rental guarantee from the vendor I had to use the vendors chosen management agent for the first 12 months. I've got no problems with this.

So - The agent has found me a tenant already (great) and the tenant is scheduled to move in this weekend. The problem is that settlement has not yet even been called for yet.

When I queried this I was advised that the vendor would rent out the apartment until settlement took place and the tenancy agreement would simply be transferred to me on settlement. Again, I really don't have any concerns with this but would like to understand if this is a common thing to occur and anything I may need to be concerned about here?

What really concerns me is that the mgmt agent has asked me to ensure that my landlord insurance is in place from the date that the tenancy agreement between the vendor and tenant starts so I'm effectively putting insurance in place and incurring those costs even though I haven't settled yet. This concerns me a little and would appreciate any info\direction\experience people have on this scenario.

Thank you!

 

I have never heard of such a thing!

What does your contract say about settlement? Usually you would need to settle within say 14 days of the occupancy certificate being issued.

Insurance cost won't be much of an issue as it is a low amount. More of a concern is would you be covered.

 

Same as Terry - this sounds weird. Property shouldn't be tenanted until after settlement.

What does your solicitor say?

Cheers

Jamie

 

I am not a lawyer, but If you have paid a deposit, then you may have a 'pecuniary ' interest, and you should insure yourself against any losses. Congrats with your new purchase!
Sounds like you will have income from day one!

 

Hey Andrew, welcome aboard.
"the tenancy agreement between the vendor and tenant"
This does sound a bit odd.

 

Hi all,

Thanks for the responses...some good questions!

I only found this out this afternoon so havent had a chance to engage my solicitor for review yet but will do so tomorrow.

I'm not at all concerned about the cost of the insurance for a few weeks but does also pose the question of who covers other costs...and in fact I should probably clarify where the rental return will go too...I assume to the vendor but I'll confirm this tomorrow when I call the managing agent to check on all of these points.

From my perspective, the insurance is my main concern in terms of whether I am covered if settlement hasnt occurred as technically I am not the landlord\owner until that occurs so I would expect any landlord insurance would be void if I wasnt the owner.

If anyone has suggestions on what else I may need to check please let me know and ill post back with further info tomorrow.

Thanks again!

 

You can't take out insurance if you don't own the property.
Marg

 

In QLD they tell you to take out insurance as soon as you have a signed contract.
Odd situation, both parties have overlapping insurance, seems like a waste.

 

Someone with exchanged contracts would have an insurable interest in the property. But this is for building insurance. They are not the landlord until settlement, so don't think they would be covered by landlord insurance prior to this.

 

Whose interest are you covering with the LL insurance prior to settlement? Unless the vendor is noted on your policy as an interested party/joint insured, they're not covered. You don't own it, have no recourse to the income so can't receive any benefit.

 

Correct for building insurance as you have an insurable interest. In the case of landlord insurance, you don't.
Marg

 

Well, you stand corrected

 

whats the current market rent and the 'guaranteed' rent difference at the moment?

 

Rental guarantee was for 415 I believe...current market rent is $450 but I'm already committed with this agent and quite happy with them so far. Understand I could have used a different agent and wouldnt have this issue, BUT I also wouldnt have tenants ready to go as soon as settlement occurs.

 

Update:

Spoke to the managing agent today. Their stance is that they have arranged tenants for their clients early and utilizing this option with the developer to get the tenants locked in and renting the apartments now, given that settlement will occur very close to december which isnt a great time to be finding new tenants. Makes sense although I suspect the developers interest is purely financial as they will be keeping the rent until settlement...but I can see there is some benefit for me here as well as I start receiving rent from the day I settle, rather than having to wait for a tenant to be found from that point onwards which could take a few weeks potentially.

I spoke to my insurer, they are also fine with this approach and are happy to cover the apartment. Whilst I am taking out the policy, and the vendor is the landlord until I settle, the insurance is against the apartment itself so if there is any damage etc to the apartment, any insurance payout would go to the person who took out the policy...which is me.

Let's assume the vendor had their own landlord insurance and the internals were gutted by fire. If I didnt have insurance, handover\settlement would be delayed whilst the apartment was fixed, again not in my best wishes but at least in this scenario I have more control.

Really weird situation and I'll be calling my insurer again tomorrow to ensure the info I was given today when taking out the policy was in fact correct.