Tenancy law changes can effect settlement date.

How tenancy law changes could cost your clients thousands in penalty interest

Changes to the Residential Tenancies Act 1987 (WA) have altered the process of ending a fixed-term lease. If not accounted for, these changes could delay settlement and potentially cost sellers thousands of dollars in penalty interest.

Under the changes, which apply from July 1 2013, ending a fixed term lease requires either the tenant or the landlord to provide a 30-day termination notice. If this notice is not provided by either the tenant or the landlord, the lease does not end.

For example, if the fixed term lease was due to expire on October 31, but notice was not given until October 26, then the tenancy would not terminate until November 25.

To terminate a periodic lease, the landlord must give the tenant 60 days notice.

The new legislation means that when selling tenanted properties, agents can no longer assume that a fixed-term tenancy will end on the expiry date of the lease. Rather, agents should also confirm that the 30-days notice has been provided and that consideration is given to when the tenancy will actually terminate. It’s also important to consider postage time of the notice, which could be as long as six days.

Failing to take the new laws into account could result in settlement delays. For example, if a property was due to settle on November 4, four days after the fixed term lease was due to expire, but the seller forgot to give notice until October 31, the tenancy would not terminate until November 30. Assuming the contract required vacant possession, this would cause a 26-day delay in settlement – potentially costing the seller thousands of dollars in penalty interest.

To avoid such costly delays, take the 30-day notice period into consideration when writing contracts. In addition, ensure that your settlement agent knows when a tenancy is in place. If the tenancy is noted in the contract or in the settlement instructions, we can inform clients of the need to deliver the termination notice in a timely manner.

Image by Mike Davis via Flickr.