Issues in Giving a Buyer Early Occupation

Tuesday, May 30, 2017

There may be a number of reasons why a seller is asked by a buyer for permission for the buyer to take occupation of a property before settlement has taken place. Whatever the reason, the seller must give careful consideration before agreeing to give the buyer early occupation.

There are a number of potential problems with giving a buyer obtaining early occupation.

These may include:

  • the buyer damages the property,
  • appliances break and there are questions as to who is responsible for their repair,
  • the property is damaged or destroyed e.g. by fire and questions arise as to whose liability it is and whether insurance is in place to cover it,
  • the buyer fails to settle, and
  • the buyer fails to vacate the property when requested.

The process for evicting the buyer of a residential property can be time consuming and expensive. A seller must think long and hard whether the risk is worth taking.

If a seller does accept the risk then the Standard Conditions in an REIQ Contract for House and Residential Land provide (amongst other things):

  • The buyer must maintain the property in substantially its condition at the date of possession, fair wear and tear excepted.
  • Entry into possession is under a licence personal to the buyer revocable at any time and does not:
    • Create a relationship of landlord and tenant, or
    • Waive the buyer’s rights under the contract
  • The buyer must insure the property to the seller’s satisfaction.
  • The buyer indemnifies the seller against any expense or damages incurred by the seller as a result of the buyer’s possession of the property.

These Standard Conditions only go so far. Consideration should be given to expanding these conditions to include specifically stating such things as:

  1. The buyer accepts the property in its condition at the date of possession.
  2. The buyer is responsible for all repairs and maintenance to the property.
  3. The buyer must pay for all services from the date of possession (electricity, gas, water consumption etc).
  4. Adjustments for rates, body corporate fees etc. should be made from the date of possession not the settlement date.
  5. No pets are permitted.

This is not an exhaustive list and there may be other issues that a seller wants to include.

As shown above, the giving of early occupation is not a straightforward issue and many complications can and do arise. Sellers need to be aware of the potential risks and proceed accordingly.

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