Early Possession: Tips and Traps

Because contracts in Queensland are generally pretty short (usually only 30 days) it isn't common for Buyer's to take early possession. That being said, if you find yourself in the situation, you're going to thank your past self for reading this.    

Should a Seller Allow Early Possession?

As the old saying goes: possession is 9/10ths of the law. Although the contract allows the seller to 'revoke the Buyer's licence to be in the property', in practice there are a myriad of risks, for example:

1. it can be difficult to regain possession of the Property if settlement does not proceed; also
2. by the time possession is regained, the condition of the Property may have deteriorated and the Seller would have to go to the Courts to try and enforce the Buyer's indemnity

As a general rule, a Seller shouldn't grant early possession unless:

• a substantial deposit has been paid;
• the contract is unconditional;
• the Buyer provides documentary proof of insurance and the policy is to the Seller's satisfaction;
• the Buyer has confirmed that they have undertaken all necessary searches in relation to the property and have found them to be satisfactory; and
• the Buyer confirms the Property has been inspected prior to taking possession and it was found to be in good order and condition and all inclusions to be present.

Agree to Special Conditions

Continuing from the previous paragraph, the protections given to the Seller under the Contract is quite often insufficient. It is the standard practice of most law firms to ask the Buyer to agree to a number of additional terms that are in the Seller's best interest, including some of the terms outlined above.

Why Does a Buyer Pay a Licence Fee and Not Rent?

Clause 8.5(2) of the Contract for Houses and Residential Land and clause 8.6 of the Contract for Residential Lots in a Community Title Scheme both say that, if possession is given to the buyer before settlement, entry into possession is under a licence personal to the buyer and does not create a relationship of landlord and tenant.

This is important. It prevents the Buyer becoming a tenant under the law and, accordingly, having all the rights that a tenant enjoys. 

Licence Fees and Instalment Contracts

It's also worth noting that any "licence/occupation fee" for the period the buyer is in possession should be paid at settlement. This is to avoid inadvertently turning the contract into an Instalment Contract. The Property Law Act outlines a number of situations/events that can turn a contract into an Instalment Contract including if the Deposit combined with any other payments made during the contract exceed 10% of the Purchase Price. 

An Instalment Contract has several key effects including giving the Buyer the ability to extend settlement by 30 days without the Seller's agreement. How? Because under an Instalment Contract, a Seller cannot terminate the Contract for the Buyer failing to pay any money until it has first given the Buyer 30 days' notice requiring payment. So a Buyer could fail to pay the balance purchase price at settlement and, before the Seller could terminate, the Seller would have to give 30 days notice to pay the money.

Where to from here?

If you have any questions, or would like a copy of some special conditions for the Buyer to agree to before granting early possession, get in contact with us. We'd love to help.