We’re occasionally asked by a buyer if the property’s sellers will allow them to move in before settlement. Their lease on their current home is expiring, they’re going away, their baby’s due, their cat needs more space – we hear plenty of reasons and many are genuine time constraints where settlement is just too far away for them.
So as a seller, you want the sale, but what are the risks of letting them in before they cough up the funds? We’ve all heard something about possession being 9/10ths of the law.
As agents we’ve seen a handful of these over the years and, thankfully, all have gone according to plan. Buyers paid a deposit, conditions approved and sale confirmed, market rental amount paid to the seller, keys handed over and they moved in – then settlement proceeded no problem.
It’s a common enough request that the standard REIQ contracts even contemplate this. Tim Dangerfield of Creevey Russell Lawyers says the terms include:
- that the buyer must maintain the property in substantially the same condition as it was in when the buyer moves in;
- the early possession does not amount to a lease or tenancy of the property, it is a licence for the buyer to occupy the property that is revocable at any time. This means that the buyer does not have any of the rights normally afforded to a tenant of a residential property under the Residential Tenancies and Rooming Accommodation Act 2008;
- that the buyer must insure the property to the seller’s satisfaction; and
- the buyer indemnifies the seller against any damage or expense arising from the buyer’s possession of the property.
Tim says a seller should think carefully before giving early possession, even with these provisions. “The buying being in possession takes away the main practical incentive to ensure the contract settles on time, and there is always a risk that an unscrupulous buyer may damage the property. Even though the contract provides an indemnity to the seller, it will still take time and money to enforce the contract if the relationship between buyer and seller breaks down.”
A risk worth taking for sellers? Maybe it depends how good a deal the sale is otherwise. For those of you buyers who read this too – maybe a slightly higher price might ease their concerns?
Have you being involved in an early possession before settlement as a seller or buyer? Please share your experiences.