Fixed tenancy sale problem
Question from Sophie updated on 15th February 2019:
We are looking at purchasing a property which currently has a two year fixed term rental agreement. If we purchase the property we would like to live in it as it will be our only property. The tenant is asking for $30,000 compensation to end the contract early so we can move in. Is this excessive? The tenant is only four months into the contract, but the owner needs to sell up due to financial hardship and so obviously isn’t in the position to assist with the $30,000 compensation.
Our expert Jennifer Sykes responded:
When a property is sold with a fixed-term tenancy in place, the purchaser of the property becomes the landlord from the date of settlement. They also take over the tenancy agreement that is in place. Under the Residential Tenancies Act, neither the landlord nor tenant can give notice to end a fixed-term agreement before the agreed end date.
So regardless of whether or not the property is sold, the only option you will have if you want to occupy the premises before the end of the fixed term is to try and negotiate with the tenant to end the agreement earlier. The tenant doesn’t have to agree to this and may negotiate certain conditions.
As the circumstances surrounding each tenancy situation can differ, Tenancy Services is not in a position to provide advice on what conditions may or may not be reasonable. But part of the RTA states that the Tenancy Tribunal can grant an order to reduce a fixed term tenancy if they are satisfied that the applicant would suffer severe hardship greater than the hardship to the other party if the term isn’t reduced.
The Tribunal may order reasonable compensation be paid where such an order is made to reduce the fixed term. This may be something that both you and your new tenants may wish to keep in mind if there is an unforeseen change in personal circumstances in future.
A fixed-term tenancy may also be terminated early by the Tribunal where a tenant is in breach of the Act or the tenancy agreement, such as when rent arrears is not remedied within a 14 day written notice period.
For more on the rights and responsibilities of landlords and tenants, such as the current and upcoming insulation requirements, go to www.tenancy.govt.nz or subscribe to our e-newsletter Tenancy Matters here.The Ministry of Business, Innovation and Employment provides information and guidance on building law and compliance, services including weathertight homes, and advice for tenants and landlords.