Tenant in Situ Clause: Navigating Your New South Wales Property Contract
1. Plain English Definition
"Tenant in Situ" means that the property is currently occupied by a renter, and you are purchasing the home subject to their existing residential tenancy agreement. Instead of receiving the keys to an empty house on settlement day, you legally step into the shoes of the landlord and take over the current lease. This means you cannot immediately move into the property yourself, as the tenant has the legal right to remain until their lease expires or is lawfully terminated under state tenancy laws.
2. The Danger Zone: Buyer's Risk
When purchasing an investment or a future home, understanding the buyer's risk tied to this clause is crucial to avoid severe financial and legal consequences.
- Jeopardised government grants: If you are a first-home buyer intending to live in the property, a long fixed-term lease means you cannot move in immediately, which can cause you to fail the 12-month move-in requirement for New South Wales stamp duty exemptions.
- Strict eviction timeframes: Under New South Wales law, even if the tenant is on an expired periodic (month-to-month) lease, you must still provide a minimum 90 days' written notice to vacate, heavily delaying your possession.
- Inherited property damage: When you sign the Contract for Sale marked "subject to existing tenancies", you inherit the property's current condition and cannot claim compensation from the vendor for damage caused by the tenant prior to settlement.
- Below-market rental yields: The existing lease might be locked in at a rental rate significantly below current market value, legally preventing you from increasing the rent until the fixed term expires.
- Bond transfer complications: If the vendor's legal team fails to properly transfer the rental bond lodged with NSW Fair Trading at settlement, you may be left out-of-pocket if the tenant damages the property before moving out.
- Costly tribunal disputes: Dealing with a tenant who refuses to leave at the end of their notice period requires applying to the NSW Civil and Administrative Tribunal (NCAT), which can delay your move-in date by 3 to 6 months and incur heavy legal fees.
4. Real-Life New South Wales Scenario
Wei and his wife, Chinese-Australian investors looking to transition into their first family home in Chatswood, signed a New South Wales property contract that included a Tenant in Situ clause. They assumed they could simply ask the renter to leave with 30 days' notice once the Contract for Sale settled. However, they discovered they were legally bound to honour the remaining nine months of the tenant's fixed-term lease. Because they could not occupy the home within the required statutory timeframe, they lost their first-home buyer stamp duty concession, resulting in an unexpected $42,000 tax bill. Always verify exact lease expiry dates and understand the tenancy terms before purchasing a property without vacant possession.