Rental Tenancy Act changes – Significant effects on buying and selling properties

Buying and Selling a Rental Property

From 29 March 2021 changes to the Rental Tenancy Act (Act) have had impacts for when Rental Providers are selling their rental properties and purchasers intending for a property they are purchasing to be rented after settlement.

The changes in the Act do not apply to existing rental agreements and tenancy arrangements but are required to be complied with at the commencement of a rental agreement or at the point a rental agreement becomes periodical.

Case study

We recently had a client purchase a rental property which they believed offered a good return with a long term tenant.  Even though the place was a bit older the investor liked the location and with a tenant in place was planning on attending to the small maintenance items over time.

The contract was signed subject to lease so the investor felt safe that the tenant would remain.  A month out from settlement our client was advised the tenant was moving out prior to settlement, providing two weeks notice as they are entitled to do under the new legislation if they had not been advised the property would be sold during the term of the lease.

Whilst a little annoyed the tenant was vacating our client requested the current owner re-let the property as provided for in the contract. 

Our client was advised by the leasing agent that re-letting the property was not an option as the property did not meet the new minimum standards as required by the Act.  The current owner was not prepared to attend to these maintenance items and legally they were not obligated to.  The property only needed to be in the condition as at the day of sale less fair wear and tear.

In the end our client not only was left without a tenant but they also had to attend to the maintenance items after settlement which would mean additional time without a rental income and further losses.

Below we discuss the relevant changes in the legislation and how each impacts on the advising Vendors and Purchasers selling and buying rental properties.

Selling a rental premises – vacant possession

Rental Providers are now required to provide a reason for vacating a premises and the length of notice required varies depending on the reason for vacating as detailed on the linked form.

When preparing a new rental agreement, the Rental Provider must disclose if an agent has been engaged to sell the property. If an existing rental agreement is in place, the rental provider will be required to provide 60 days’ notice to vacate the premises, however, the length of the rental agreement may not be shortened to vacate for this reason.

Buying a rental premises

Purchasers need to be aware of the new minimum standards of all rental properties and when choosing a property to purchase they should be checking for the following:

General Safety

  • operating windows must have locks fitted (where possible) – if no lock can be fitted, then a latch to prevent access from outside is required

  • doors can be locked by a key from the outside

  • electrical safety switches installed from 29 March 2023

  • habitable rooms must have natural and artificial light source

Bathroom/toilet

  • must contain a washbasin

  • shower/bath and shower heads must be minimum 3 star rated

  • connection to waste system

  • must be in dedicated structure

Kitchen

  • dedicated food preparation area
  • sink with hot and cold water
  • stovetop in good working order with more than 2 burners
  • if an oven is installed (not required) it must be in working order

Laundry 

  • is not a minimum requirement but if provided, must contain hot and cold water

Heating 

  • must be installed in

    the main living area from 29 March 2021 and by March 2023 must be a fixed heater with a minimum 2 star energy efficiency

Safety Requirements

Gas and electrical checks must be done every two years, along with smoke alarm checks every year.

VCAT and Evictions

While VCAT is available to enforce the eviction of a Tenant, there is currently a significant delay in cases being heard due to the COVID 19 suspension of evictions.

The impact of this in real terms means that it can take up to six months to have a Tenant removed from a property in the current climate, even when Rental Providers have complied with all requirements.

 

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