Welcome to Property 101 and today we’ll discuss the 4 key documents to review BEFORE buying a tenanted property.
4 Key documents to review before buying a tenanted property
Buying a property that is currently tenanted provides a stream of rental income from day one. It’s important however, to conduct comprehensive due diligence and review all the relevant documentation prior to purchasing a property that has a tenant already, to ensure that the purchase is a sound investment. As a Brisbane based Buyer’s Agent, we understand that purchasing a tenanted property add’s another level of complexity and accordingly, we do everything we can to mitigate the risks and protect our clients’ interests. In this blog, we’ll discuss 4 key documents that should be reviewed before buying a tenanted property in Queensland.
1. General Tenancy Agreement (Form 18a)
Obtaining and reviewing a copy of the signed General Tenancy Agreement (Form 18a) before buying a tenanted property is an essential step for any potential buyer who is considering purchasing a property with a tenancy in place. This lease agreement is a legally binding contract between the tenant and the property owner and it outlines the terms and conditions of the tenancy, including the lease start and finish dates, rental amount and outlines the responsibility for paying outgoings such as water. By obtaining a copy of the signed General Tenancy Agreement (Form 18a), the buyer can verify that the lease is current, valid and ensure that they are aware of the terms of the tenancy that they will be taking over. This includes any special conditions that may be included in the lease, such as pet approval etc.
2. Tenancy Ledger
Reviewing the Tenant Ledger before buying a tenanted property in Queensland is an essential step that potential buyers should not overlook. The tenant ledger is a detailed record of the rental payments and arrears of the current tenants in the property. By examining the ledger, the buyer can get a clear picture of the financial history of the tenancy and identify any potential issues that may arise in the future. This includes identifying any rental arrears, tenant disputes, or lease breaches that may impact the property’s profitability. It will also detail any expenses that the tenant reimbursed, such as water consumption charges.
3. Entry Condition Report – general tenancies (Form 1a)
An Entry Condition Report (Form 1a) is a comprehensive document that outlines the condition of the property at the beginning of the tenancy, including any pre-existing damages, wear and tear and maintenance issues. By obtaining a copy of the report and ideally the accompanying photographs prior to buying a tenanted property, the buyer can verify the state of the property as at the date the tenant moved in and ensure that they are aware of any existing issues that they may inherit when they take over ownership. This information is particularly important as the new owner becomes responsible for the maintenance and upkeep of the property as soon as they take possession. Without a copy of the entry condition report, the new owner may be liable for damages that they did not cause, or may have to pay for repairs that could have been avoided with prior knowledge of the property’s condition. Furthermore, if the tenant decides to vacate the property and there are disputes over the condition of the property at the end of the tenancy, the entry condition report serves as crucial evidence that can be used to resolve the dispute at QCAT.
4. Bond Lodgement (Form 2)
Confirming that a bond for the tenancy has been lodged with the Rental Tenancies Authority (RTA) is the fourth of the key documents to review before buying a tenanted property in Queensland. A rental bond is a payment made by the tenant at the beginning of the tenancy that serves as a security deposit for the owner in case of any damage or unpaid rent at the end of the tenancy. The bond must be lodged with the RTA within 10 days and failure to do so can result in a financial penalty. By confirming that the bond has been lodged with the RTA, the potential buyer can ensure that the bond is being held in a secure account and is accessible in the event of any disputes at the end of the tenancy. Additionally, confirming that the bond has been lodged with the RTA can provide peace of mind for the buyer, knowing that the current owner has followed the law and best practice and that the tenant’s interests are being protected.
Purchasing a property with an existing tenant in place can be a bonus, but it’s important to conduct thorough due diligence and review all the relevant documentation to ensure that the purchase is a sound one. This blog has covered the key documents that should be requested from the vendor and their selling agent and reviewed, prior to buying a tenanted property in Queensland. Reviewing these documents as part of your due diligence allows you make an educated decision on the property and the tenancy, thereby mitigating the risks and protecting your interests when purchasing a tenanted property. By considering these documents prior to buying the property, you can ensure a smooth transition of ownership, providing a steady stream of rental income from day one
If you are considering purchasing a home or investment property in Brisbane or South East Queensland and would like the assistance of an experienced Brisbane Buyer’s Agent that can help you find the perfect property, that meets all your requirements for the right price, please don’t hesitate to contact us.
We look forward to hearing from you.
Sam Price, Buyer’s Agent and Director – Templeton Property.