How do adjustments work when buying a tenanted or rented property?.

A tenanted sale adds the lease to the adjustment picture. If rent is paid up to and including settlement day, no adjustment is needed, and the buyer receives rent from the tenant for the period after settlement, which needs only a letter rather than a formal assignment under section 141 of the Property Law Act 1958. Rent is adjusted on a GST exclusive basis, with the vendor issuing the tax invoice and accounting for GST on the pre settlement rent, and daily rent is calculated under section 54 of the Supreme Court Act 1986.

Rates depend on who the lease makes responsible. If the landlord is responsible, rates are adjusted normally. If the tenant is responsible and has paid, there is no adjustment, but if the tenant is responsible and has not paid, the buyer can still require the vendor to adjust, because the vendor has a separate contractual obligation to the buyer, and the buyer recovers from the tenant while the vendor, no longer in contractual relations with the tenant, generally cannot, as in Ashmore Developments v Eaton. The contract may give the vendor a right to sue the tenant in the buyer's name for arrears.

Rent in arrears at settlement is generally not adjusted, and a vendor who has not protected the position by special condition may never recover the arrears, as in Tempirose Pty Ltd v Whitehorse Property Group Pty Ltd. A security bond is usually adjusted between the parties, and where the lease provided for a bond that was not paid or has been dissipated, the buyer may require the vendor to allow the full amount.

CMK Legal's property and conveyancing team can act on matters like this.

Law referenced: Property Law Act 1958 s 141; Supreme Court Act 1986 ss 54, 56; contract adjustment conditions; Ashmore Developments Pty Ltd v Eaton [1992] 2 Qd R 1; Tempirose Pty Ltd v Whitehorse Property Group Pty Ltd [2002] VCAT 1379.