Are you buying a property “Subject to Lease”?
The Sale of Land Act 1962 sets strict legal requirements on both tenants, sellers and buyers of property that is sold or bought subject to lease. Typically, once settlement takes place a purchaser is entitled to vacant possession of the property. However, if the Contract was signed “subject to lease”, this means that the property was sold with a current lease in which tenants reside in the property. At settlement the purchaser pursuant to provisions in the Property Law Act 1955, will become the Landlord and is bound by the terms of the existing lease and is entitled to receive rent profits from the day of settlement.
A copy of the lease should be provided in the Vendor’s Statement before the contract of sale was signed. The lease will include details such as the term and any future options to renew the lease, rental payable and bond or security deposit. It is important that as a purchaser of a property with an existing tenant that you understand the terms of the lease. At settlement the security deposit should be adjusted or a new bank guarantee given to the new landlord.
As the new landlord, you are entitled to appoint a managing agent of your choice. You are not required to remain with the current managing agent.
It is important to note that if you are buying or selling a commercial property and the vendor and purchaser are registered or required to be registered for GST, the purchase price will typically be subject to GST. However, if the commercial property is subject to lease the contract will be considered as “going concern”. This means that if settlement occurs before the lease ends, then sale will be going concern as the property has been sold fully tenanted where the leases were included in the sale. However, if lease ends before settlement occurs then the contract will need to be amended in relation to GST.
If you are selling purchasing a property subject to lease, you should seek the appropriate advice from our office. We can assist with both the conveyancing and leasing aspects of the transaction. You can contact us via telephone on 9707 1155.