Have verbal agreement on selling a NSW property under a lease option arrangement where tennant / purchaser pays maintenance & council rates. Issue is regarding the legals behind tennant paying maintenance costs and council rates. Can it be incorporated in Lease Option or do I just increase the weekly option payment to cover expected maintenance & council rates ?
I understand that I can increase rent to 10% above curent rent, but anything over would be deemed capital and is part of Option to buy Is this correct ?[blush2].
In NSW if the landlord makes the tenant pay these expenses and the tenant later takes the landlord to the tribunal, the tribunal will likely order the landlord to repay the tenant for these expenses. So it would be dangerous to include them in the lease. I would just increase the rent by a similar amount and leave them out.
Terryw
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Parramatta
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Hi,
Just a quick question:
With a residential IP what is the tenant expected to pay?
i.e. Electricity, water, gas, land/council rates etc..
Thanks
Paul[suave2]On NSW Central Coast, the tennant pays Electricity, Water Usage, Gas.
Council rates are paid by landlord. The Water availability charge is part of council rates.[blush2]
Thanks Terryw,
Another question, how about if the maintenance costs are a condition of the contract of sale ?
So at this stage the deal would be structered as follows:-
– 10% rent increase
– option to include X amount as deposit & Y amount per week to cover the increase in rent that can’t be covered under a lease arrangement due to limits in the Resiential Tenancies Act
– Contract of sale to include sale price and usual sale items, but to also include a condition regarding maintenance costs & council rates payable by purchaser.I don’t know how legally binding it is linking the contract of sale and Option i.e. if defaulting on maintenance costs then can it void the option.
Anyone else structure an Option like this ? any advice ?
Cheers
wazwaz71 [blush2]
10% extra on rent is not much. I have done some in Vic and was charging 40% extra in rent. Are you sure about the RTA preventing charging any more than 10% above market rent?
Do you need a contract of sale at this stage? You are only selling an option and the option agreement should probably cover the method used to determine the eventual purchase price.
Terryw
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Parramatta
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I have been told by my solicitor that the RTA does not allow for the increase that we have agreed on.
The actual agreed rent increase is 30% plus $2K down (taken off purchase price on completing option / sale) & all maintenance & council rates covered by tennant / purchaser.
RE Contract for Sale – If I was buying the prop under an option I would want to know the inclusions, make sure the prop I was buying was the correct one etc & look at the building approvals etc as though I was buying it now. I understand a contract for sale can stay active for a number of years (indefinately ?) so eventually I’ll need one anyway.
Cheers
wazwaz71 [blush2]
Good points Wazwaz, I have had no purchaser of my options want to see a contract, but it makes sense that they should be asking.
Maybe your tenant is an existing tenant? If so, that may be the reason for the 10% limit? Maybe you could put the rent up every 6 months or so?
How will you work out the end purchase price?
Terryw
Discover Home Loans
Parramatta
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Yes the tennant is existing. We think we have now covered all the bases in that rent will include council rates. It will be a new lease agreement with a certificate from tenants & their legal advice stating they have legal advice abount this matter. The Option will include mtce exps being a condition of the option. The rent will increase in line with increases in council rates.
The end purchase price has been worked out. I worked out a figure that I would sell the prop for taking into account the current market & the cash I need from the place. If the market has a growth spurt beyond the proposed sale price then good luck to them – I’ll be happy & they’ll be happy !!
Cheers
wazwaz71 [smiling]
And how long is the agreement, you don’t want it to drag on too long – one of mine is dragging into its 5th year.
Terryw
Discover Home Loans
Parramatta
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To settle in July 2009.
Cheers
wazwaz71
The tenant needs to remain a tenant until they exercise their option to buy the property and become a home owner. Until then, they are under a residential lease agreement with an option to buy the property. Residential laws must prevail. If you mix the 2 you make things complcated for yourself.
Under no circumstances should the tenant ever be allowed to pay for expenses related to the property that they landlord is oblicated to pay under the terms of the lease agreement. Ie council rates!
If the tenant defualts on payments, you may not be able to use the residential laws to evict them if you have breached those laws by allowing them to pay council rates etc. By doing this, you may be giving the tenant a right to claim equitable interest in the property. If this is granted by a tribunal or higher law, then you would need to formally foreclose on them to get them out of the property (like a bank does), this could be months of lost rent.
Much easier to use the residential laws where they can be out in 3 to 6 weeks. Dont ever give anyone interest in your property until they are ready to excercise!
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