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:
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.
Posts
No comments:
Post a Comment