Part 4 Legal Loopholes
5. Undisclosed Leases And Options
The standard contracts of sale used for the sale of real estate contain provisions that the property is sold with vacant possession unless details of tenancies and options to extend the tenancies are set out.
Many properties which are tenanted, however, are sold with vacant possession and without the details of the tenancies being noted on the contract of sale, on the assumption that the letting agent will terminate that lease before settlement so that vacant possession can be passed to the buyer.
Where, however, the letting agent is different to the selling agent, there may not be a lot of cooperation between the two agencies. If you were the buyer of such a property then it would pay you to make discreet enquiries to ascertain whether the tenant would be vacating on the completion date.
If they fail to do so then there is fundamental breach by the seller under such a contract, as they would fail to deliver vacant possession and this entitles you to terminate the contract of sale as the buyer. If you sign a contract to purchase a property which is tenanted, call for a copy of the lease and carefully check that the terms of the lease are disclosed in the contract of sale.
If the lease is incorrectly described in the contract of sale as a periodic (i.e. month to month tenancy) and the lease document shows that the lease is for a fixed term and has, say, another six months to run, unless the tenant vacates the property on settlement, in most cases you would have the right to terminate the contract of sale and receive a refund of the deposit. Likewise, check the contract of sale against a copy of the lease to ensure it discloses any options to extend the term of the lease that are contained in the lease document.
Options are for the benefit of the tenants and it is generally the tenants’ call about whether they exercise the option and stay on. If details of the option are not included in the contract of sale then this may also give you the right to terminate the contract of sale or at least use it as a lever to renegotiate the price down.
Ask your solicitor, too, to also carry out a title search of the property and check that the parties shown as the landlord or lessor on the lease are the same as the parties that actually own the property.
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