Sold! Now tell the tenant

Investors sell residential properties too. Obviously many such properties are tenanted when they're sold. It therefore amazes me how often I see sellers of such properties not being reminded, by their agent or lawyer, to notify their tenant to leave the property before the time the sale is completed in cases where the fixed term part of the tenancy has expired. This can result in any number of problems for both sellers and buyers.

The lesson at the end of this post is a simple one. If you've just sold a residential tenanted property in NSW where: (a) the tenancy has expired; and (b) the buyer is entitled to vacant possession; then make sure, and make sure again and again, that early and proper formal notice is given to the tenant to leave the property by just before the sale is completed.

In NSW, most private residential tenancy leases (or more correctly, Residential Tenancy Agreements) are governed by the Residential Tenancies Act. The Act sets out the minimum notice that must be given by a landlord to a tenant to end the tenancy and for the tenant to leave the property.

If the fixed term part of the lease has expired, generally the landlord must give the tenant a minimum of 60 days' notice for the tenant to leave the property. BUT, if the landlord has sold the property AND entered a sale contract, this notice period by the landlord is reduced to 30 days.

If a seller has not given the correct notice to a tenant, then that tenant is well within their legal rights to not leave the property. This can cause numerous problems.

For example, if the sale contract provides that at completion the buyer is entitled to vacant possession of the sold property, the seller won't be able to do so if the tenant is still in the property. This leaves the seller exposed to a breach of contract claim by the buyer.

Not that most buyers are ready to pounce to make a claim, however think of a situation where the buyer has already not only made moving arrangements, but given notice to their landlord, and that landlord has new tenants moving into that property, so the buyers can't just simply stay for just a little while longer.

The seller too, may have committed to another purchase that was also to be completed on the same day, but the sale proceeds from their frustrated sale are required to complete that purchase, which now too must be delayed. Now, the original seller could be exposed to another breach of contract claim, this time by the seller to them!

You can see now the beginnings of a domino effect happening. I had two situations within about the last 12 months where seller clients had what turned into unpleasant experiences but which thankfully did not deteriorate into what could've been much more costly incidents. In both cases, the agent was both the selling agent and managed the tenancy on behalf of the seller/landlord.

In the first case, once his sale contract became unconditional, following my advice the seller instructed his real estate agent to give the tenant notice of the end of the tenancy and to leave the property before the sale was completed. 31 days before the contract completion date, my client telephoned me to confirm he had given those instructions to his agent and the agent assured him that he would hand deliver the notice to the tenant that day; my client was satisfied with that.

Now, fast forward to the week before the sale was due for completion. The agent advises that the tenant refuses to leave the property as he had nowhere to move into. My client then finds out the agent simply forgot to give the Notice to tenant three weeks beforehand! In trying to make up for his forgetfulness and neglect, the agent frantically tries very hard to help the tenant find alternate accommodation. The end result is that completion of the sale occurs almost 3 weeks late. Apart from the stress, frantic telephone calls, disagreements with the agent, my client also pays almost 3 weeks' additional interest on the loan he was meant to discharge with the sale proceeds.

In the other case, the completion date was more critical for my vendor client. After obtaining reassurances, she made firm commitments to apply all the sale proceeds due to her on the sale completion date. She asked the agent to provide the formal written notice to her tenant, she called back afterwards and the agent confirmed he personally delivered the formal notice. My client then telephoned me to confirm all this. In addition, the buyers fixed the completion date to coincide with the completion of their sale. The buyers' representative had notified my client and I that my client's buyers had to move out of their house to let their purchasers in on the same date.

Well, you've probably guessed by now... About a week before completion the buyer's representative informed me that the agent informed them completion had to be delayed as the tenant was refusing to move out; their client buyer was frantic. It was the first I heard about this, and my client hadn't heard anything either. What also puzzled, and then angered, my client was why was the agent discussing this with the buyer and not with her? The agent refused to discuss the issue with my client, and even hung up on her! Remember, this is my client's agent!

The agent refused to provide to my client (his customer) and to me a copy of the Notice he earlier assured he had "personally delivered" to the tenant. It turned out that no Notice was ever given to the tenant by the agent. With the assistance of the buyers' representative, we managed to encourage the agent to finally come to the party. What appears to have happened is that the agent found, and paid for, for temporary accommodation and other compensation to the tenant, in return for the tenant agreeing to move out early.

In both cases the tenant was not given the proper Notice. This caused a lot of unnecessary stress upon sellers, buyers and the tenants. Any stress the agents may have suffered was self-inflicted. Additional unnecessary costs were incurred. In the circumstances, neither tenant was being unreasonable, they just weren't properly notified. So what lessons, or precautions, can sellers draw from examples such as the above two? I would suggest:

• where the fixed term part of the tenancy has expired, ensure that your agent (the agent managing the tenancy) gives adequate, and at least 30 clear days' written notice - preferably more - to the tenant to leave the property before the time the sale is completed;
• check with the agent regularly to confirm compliance;
• again, check and confirm with the agent;
• ask the agent to give you a copy of the formal written notice he provided to the tenant - if this request is refused or excuses are made, you should be hearing alarm bells!;
• if you're able to, and you're comfortable with this, consider personally giving the notice to the tenant yourself - if required, ask your agent or solicitor to draft a form of notice for you;
• keep diary notes of conversations concerning these.

I'm sure there's probably other precautions a seller could take, but this list should at least provide some guide for a good start.

Displaying a Statement of Ethics

Just the other day I was in a meeting attended by various businesses people. Someone raised the subject of codes of ethics for various industries and professions. From that came a question to those present as to whether we followed such a code that applied to our respective industries and professions. All replied yes. The next question was whether such code was displayed at our places of business. Almost all present, including me, replied yes. For years I have been proudly displaying a Statement of Ethics in my office reception, where its visible to visitors.

The conversation then moved to whether these codes were on our respective websites. Well, until then it hadn't even crossed my mind, but I immediately realised there wasn't one my website. I've now rectified that by adding a page reproducing my profession's Statement of Ethics to which, as the preamble on the linked web page states, I aspire to achieve and maintain.

Positive housing finance figures good news for Liverpool & Sydney's south-west

Following the release of these figures by the Australian Bureau of Statistics (ABS) last week, for a change there was some positive economic news concerning home loans and housing finance. Such reports include those by ABC News and by The Australian.

Summarised, the ABS figures show that in November 2008, compared to the previous month, re-financing approvals for purchases of established houses rose 1.1%. Also, first home buyer commitments - as a percentage of total owner occupied housing finance commitments - increased from 19.5% in October 2008 to 23.6%. This is seen as result of the federal government's decision to increase the first-home buyers grant.

The figures are probably even more positive for Sydney's south-west. NSW Office of State Revenue data (as at September 2008) has consistently shown since first-home buyers' grants became available from 2000, by value most such benefits are made to buyers in Sydney's south-west. These figures are based on postcodes. The two top postcodes are Liverpool NSW (2170) and close behind, Campbelltown NSW (2560). However, here's where statistics can play tricks sometimes. There is a separate figure for Hinchibrook (also in the top 20) as it has a different postcode (2168) but in reality is considered part of Liverpool.

Of course data can be interpreted in different ways but whichever way you slice and dice these figures, the Liverpool area is certainly one of the largest beneficiaries of first home buyers' benefits in recent years.

It's Land Tax time again, and the economic slowdown doesn't help either...

The land tax rate in NSW for 2009 is to remain at 1.6% (plus $100) on the combined value of all taxable land in excess of the threshold. The NSW Valuer General (VG) has determined the land tax threshold for 2009 is $368,000.00. Note however, that land tax rate for properties valued at over $2.25m is charged at the premium rate of 2%

Who is required to Pay Land Tax?
In NSW, land tax is levied on landowners on the value of the land in NSW they owned at midnight on 31 December of each year.

Generally, your home and land used for primary production (such as farms) are exempt. Land tax is calculated on the combined value of all taxable land (the other land that doesn't include the home or farm) you own above the threshold. That is, it's assessed on the land value between the threshold amount ($368,000.00 in 2009) and the premium rate threshold.

Examples of other land that may included in determining whether you're liable to pay land tax include investment properties, vacant land, holiday homes and factory units.

What about those land values?
This report reveals a problem caused by the economic slowdown, in turn caused by the recent global financial crisis, in that properties' valuations in NSW were assessed before the impact of the economic slowdown really hit. The time lag in those assessments have caused VG figures recently released to suggest that some land values in NSW have actually increased quite handsomely! Other more sobering reports, and probably truer and more current, such as this one, actually discuss the falling market values.

The VG and the NSW government appear not to be denying the anomaly, but state when land values are reassessed in 2009, those assessments will take into account land values relative to the market at that time. We'll see.

Selling a property? Speak to more than one real estate agent

An alternative heading for this post could have also been "Sometimes a lawyer's best advice that a client should act on isn't even legal advice".

By far almost all sellers who decide to sell their real estate property, list the sale through a real estate agent. After all, it's an agent's business to market and sell property. Often sellers have chosen and signed up their listing agent before they consult their legal adviser.

Like many associations in life, prospective sellers sometimes have an existing relationship with a real estate agent, even before deciding to sell. It could be the agent through which the property was originally purchased, or the agent is managing the tenancy in the property, or a trusted friend recommended the agent.

No matter how well you think you know or trust an agent with whom you're just about to commit to, my advice is that always, always seek the opinion of at least one more real estate agent about the sale of your property, although another one or two more again wouldn't hurt. This is one piece of advice I've consistently given to sellers over many years.

After consulting one, you will be better prepared not only when consulting and asking questions to the next one, but also when, or if, you re-visit the first agent that was consulted. There are many issues to consider and negotiate, including commission rate, advertising, the possible selling price, and whether advertising costs are included.

Some time back a particular married couple consulted me about selling their home. I'd already known them, and knew they were both hard working, had a high level of debt, all on top of raising their young and growing family. They could ill afford to unnecessarily throw money away. Yet, that's exactly what they did.

They had already signed up with an agent, I can't now recall exactly when, but it was at least 3 or 4 days before consulting me, and the cooling-off time limit had already long passed.

It was while taking down other details, answering their questions, explaining the process when, as an afterthought, he handed to me a copy of the agency agreement they had both signed. It looked fairly typical, until I saw something that made me almost fall off my chair!!

The agent's commission was to be 6% of the sale price!!! 6%!!!

It got worse. On top of that, the agreement provided that the seller was also to pay the agent's advertising costs, some $700 to $800!

Think about it. If you sold your home today for, say, $500,000, at that rate the agent's commission on the sale would total $30,000, not to mention the GST and the advertising costs.

To put it into context, from my anecdotal observations, agents' quoted commissions on sales of typical residential properties, at least in the south-western area of Sydney, tend to fall between 2 to 3% of the sale price, usually roughly in the middle of that range. Some agents quote their fee as inclusive of GST, others don't.

Obviously I asked my clients a series of questions on how it came to be. They were a little perplexed at the fuss; they assured me that the agent had clearly explained to them his commission rate, he didn't hide it. They told me how the agent reassured them that that was HIS normal rate - I suspected it wasn't despite his very, very careful choice of words. "He was so nice to us. He explained everything..." they told me. He was so nice, apparently, that my clients didn't see the need to at least consider or speak to another agent.

If only they'd just spoken to another agent, even just a phone call. "If only..." At the very least they would've become aware that the 6% commission wasn't so normal after all. No holding punches here, this particular agent saw them coming, and he simply ripped them off!

The couple's house did sell, but unfortunately their story didn't get any better.

If you intend selling your property and listing it with a real estate agent - notwithstanding that by far most are reputable - the very least you should do is no matter how well you like or believe you have made up your mind, is speak and consult with no less than two agents before signing up with any agent. Sure, check out the agents' commission rates but remember, like many goods and services, price is just one of your many considerations.