Question
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06 October 2017

Out with the old landlord, in with the new

Sale, Purchase, Mortgage, Lease
New South Wales

Asked

Sale - Rent adjustment

We act for the vendor.

The property was sold subject to a tenancy.

What is the standard practice for rent adjustments?

Answered

Thank you for the question.

The following is an extract from our Sale of Real Property commentary:

Rented properties

If the rent is paid up to and including the adjustment date, no adjustment will be necessary.

The purchaser is entitled to receive the rent directly from the tenant for the period after completion. On completion, a purchaser will obtain a letter from the vendor directing the tenant to pay post-completion rent to the purchaser, although no formal assignment of the vendor's rights is necessary as between vendor and purchaser. The letter is important as the tenant is entitled to continue paying rent to the vendor until the tenant receives notice of the change of ownership. See s 125(2) Conveyancing Act 1919 and s 34 Residential Tenancies Act 2010.

Rent in arrears

Under clause 4 of the By Lawyers contract and clause 24 of the Law Society contract if the tenant is in arrears of rent on the adjustment date the amount is treated as if paid and adjusted accordingly.

The vendor is entitled to pursue the tenant for any pre-completion arrears, as the purchaser assigns to the vendor the debt, being the arrears due under the lease. If the tenant did in fact pay such arrears to the purchaser after completion, the vendor would be entitled to receive those arrears.

Rent in advance

Under clause 4 of the By Lawyers contract and clauses 14 and 24 of the Law Society contract rent, or similar payments, paid in advance are to be adjusted.

It is recommended that rent adjustments should be conducted on a daily basis. If rent is paid monthly, the daily rent should be calculated by multiplying by 12 and dividing by 365. This may be contrasted with clause 14.7 of the Law Society contract that requires adjustment in relation to consumable outgoings to be calculated by reference to the actual period during which the outgoings are incurred. This may result in some minor discrepancies between periods, for example, 89 days rather than 92 days in a three month period.

Security bonds

Under clause 9 of the By Lawyers contract and clause 24 of the Law Society contract a vendor must allow, transfer or replace any security bond.

Where the premises are covered by the Residential Tenancies Act 2010, the bond will have been lodged with the Rental Bond Board (now part of NSW Fair Trading). The relevant document is a Change of Managing Agent/Owner form.

Under clauses 9 and 13 of the By Lawyers contract and clause 24 of the Law Society contract the vendor must give appropriate notices and provide the purchaser with documents relating to the Retail Leases Act 1994.

Regards

Mentor