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What happens when you buy a tenanted property?

An empty house and a new set of keys awaits most home buyers at settlement. But some will inherit a tenant and a house full of somebody else’s belongings.

Buying a property with existing tenants can present a dilemma to home buyers keen to move into their dream home.

However there are options to make life easy for both parties.

The first step is finding what kind of lease is in place, says buyers advocate Nicole Jacobs.

“There are two types of leases – periodic or month by month and fixed term lease agreements where the tenant signs up to a specified time to lease the property with a start and an end date,” she says.

“When a fixed term tenancy agreement comes to an end, they sometimes roll over into periodic tenancy agreements where the tenant pays on a monthly basis.”

Before they purchase a property, home buyers are entitled to know what type of lease is in place and this information can be found in the vendor’s statement.

If a periodic lease exists, the landlord can give the tenant 60 days notice to vacate. The notice can be issued during the settlement period or before the property is sold.

But the same terms don’t apply if a tenant is bound by a fixed term agreement, says Jacobs.

“The landlord cannot break the lease of the tenant and this lease will follow with the property,” she says.

“When the new owner has settled they then take the rent. The agreement between the tenant and the new owner is documented on the lease agreement to reflect this.”

From settlement, the tenant’s rental payments will be paid to the new property owner. Updates to the lease agreement including the new landlord and payment details can be made with the existing property manager, who will also notify the relevant state bond authority.

New owners have the right to change property managers or manage it themselves, but must inform the tenant and update these details on the lease. Landlords are also entitled to raise rents, but only at the end of a fixed lease and they must give tenants on either type of lease 60 days notice.

While tenancy laws differ from state to state, there is room for tenants and landlords to make mutually beneficial arrangements, says property advisor Toni Planinsek.

“If the tenant knows you want to move in you can negotiate to pay for some of their moving fees or final rent payments,” she says.

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