Rent in advance on settlement

Retta asks:
(updated on Friday, October 18th 2013)

I recently brought a property with existing tenants and I lodged a change of landlord form with the previous property manager. The previous property manager did not advise us before we settled with the vendor that the tenants had paid rent two weeks in advance. We asked the property manager why she didn't tell us earlier and she said her agreement was with the previous owners. Is there anything we can do to recover this? Or is it just too bad that we are out of pocket?

Our Experts Answer:

You have raised two matters here - rent in advance, and apportionment of rents upon change of owner. Firstly, rent in advance, a great number of landlords and tenants do not understand what this means. There are specific requirements in the Residential Tenancies Act 1986 regarding the payment of rent in advance. All rent is to be paid in advance and the landlord is not permitted to require the payment of any rent “before the expiry of the period for which rent has been paid already”. It has been a common practice in the past for some landlords to require a bond and also two weeks’ rent in advance and then have the tenant start paying regular rent payments within the two weeks which had already been paid. For a landlord to require this type of early payment of rent is declared to be an unlawful act under section 23 of the RTA. Therefore, the initial rent in advance must be used up before the next rent payment is then due at the end of the initial period. That means that, if rent is paid on time, the last rent payment pays for the last few days of the tenancy without any “floating” week from the start of tenancy. Secondly, rent apportionment. When a tenanted property changes ownership, the vendor has probably received a final rent which overlaps the settlement date. In this event some of that rent rightly belongs to the purchaser. The odd days that overlap should be apportioned by the vendor’s solicitor to the purchaser during settlement. If the vendor has received money that should be paid to you, the purchaser, it is a matter that you should take up direct with the vendor.

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