Understanding Early Possession and Licence to Occupy in Victoria Property Contracts
Plain English Definition
Early Possession / Licence to Occupy means a legal arrangement where the vendor permits the buyer to move into the property or store goods on-site before the formal settlement date. In a Victoria property contract, this is typically documented via a special condition or a separate Licence Agreement, allowing the buyer to use the home as a licensee rather than a tenant.
The Danger Zone: Buyer's Risk
- Deemed Acceptance of Condition: By taking early possession under a standard Section 32 / REIV contract, you generally waive your right to object to the property's condition or any "vices" discovered later, effectively accepting the home "as is."
- Insurance Liability: You are usually required to take out full building and public liability insurance immediately, naming the vendor as an interested party, which can be difficult to arrange for a property you do not yet own.
- Maintenance Obligations: From the date of possession, the buyer is typically responsible for all rates, taxes, and outgoings, as well as maintaining the garden and house in the same condition as at the start of the licence.
- Non-Refundable Licence Fees: Buyers often pay a daily or weekly licence fee (similar to rent) to the vendor; these payments are an additional cost and are not deducted from the final purchase price at settlement.
- Strict Renovation Bans: Most Victorian licence agreements strictly prohibit any structural changes or renovations; if you paint walls or remove carpets and settlement fails, you may be sued for the cost of restoring the property to its original state.
- Risk of Summary Eviction: If the contract of sale is rescinded or settlement is delayed due to your fault, you must vacate the property immediately (often within 24 hours), potentially leaving you with no home and your belongings in storage.
Real-Life Victoria Scenario
Li, a first-home buyer in Glen Waverley, negotiated early possession to move out of his expensive rental two weeks before settlement. After moving in, he discovered the central heating system was faulty, but because he had signed the licence agreement, he had legally accepted the property's condition and could not force the vendor to repair it. When his bank hit a technical snag that delayed settlement by five days, Li was forced to pay both a penalty interest rate of 11% and a daily licence fee, costing him an extra $2,800. The lesson is that early possession shifts almost all property risks from the vendor to the buyer before the buyer actually owns the asset.