Selling a property that has tenants in place adds a layer of complexity to the settlement process. With proper planning, however, it doesn’t have to be a stressful experience. At Mosaic Settlements, we’ve outlined key considerations to help ensure the smooth transfer of a tenanted property to a new owner.
1. Clearly Outline the Tenancy in the Contract
One common issue that arises in the sale of tenanted properties is failing to address the tenancy in the contract. According to the Joint Form of General Conditions, the buyer is typically entitled to vacant possession unless otherwise specified. If the intention is for the tenant to remain in the property after settlement, it’s crucial to include a special condition in the contract that details the ongoing tenancy.
Failing to include this condition can lead to delays or disputes, as the buyer may expect vacant possession if it’s not clearly stated that the tenancy will continue. Even if the buyer and seller have verbally agreed to keep the tenants in place, nothing is legally binding unless it is written into the Offer and Acceptance contract. To avoid complications, make sure the tenancy is documented properly, securing both parties’ expectations.
2. Manage Rent Adjustments Carefully
One of the most frequent questions we receive involves rent payments around the time of settlement. Both buyers and sellers want to know how rent should be distributed, especially if the tenant has paid rent in advance. Here’s how it works:
- The seller is entitled to rent up until the settlement date, and the buyer takes over from the day after settlement.
- If the tenant has paid rent that covers a period after the settlement date, the seller’s settlement agent will adjust the amount at settlement, ensuring the buyer receives their portion.
- If the buyer plans to keep the seller’s property manager, the property manager will often handle the rent adjustments. If not, it’s essential to ensure the settlement agents manage these details accurately to avoid disputes.
In cases where rent hasn’t yet been collected but the seller is entitled to a portion, the buyer is responsible for ensuring the seller receives their share once the payment is made. Proper communication and handling of rent adjustments can prevent confusion and ensure a smooth transition.
3. Plan for Tenant Vacating if Required
If the property is being sold without tenants, it’s important to allow adequate time between the tenant vacating the premises and the settlement date. We recommend the tenant vacate at least a week prior to settlement to allow for any necessary final inspections.
This extra time is vital for a few reasons:
- The seller will need to conduct a bond inspection to ensure the property is in good condition.
- Professional cleaning, including carpet cleaning, may be required.
- The buyer will also want to carry out a final inspection to confirm the property meets their expectations.
Rushing this process can lead to settlement delays if issues arise during the final inspections. Ensuring the tenant vacates well in advance provides a buffer to resolve any last-minute concerns and ensures a smooth handover.
Ensuring a Hassle-Free Settlement
Selling a tenanted property can present unique challenges, but with the right preparation and attention to detail, these challenges can be easily managed. At Mosaic Settlements, we help sellers navigate these complexities by ensuring contracts are clear, rent adjustments are handled smoothly, and final inspections run without a hitch. By addressing these key points early, you can avoid the common pitfalls of selling a tenanted property and ensure a successful settlement process.
If you have any questions about selling a tenanted property, our experienced team at Mosaic Settlements is here to assist every step of the way. Reach out to us at your earliest convenience.
