We have seen a sharp rise in the number of requests from buyers seeking access or possession of a property before settlement. When things proceed smoothly, this is often a option that provides both buyer and seller with flexibility, but there are some factors to be aware of to ensure you are making an informed choice.
Whilst the terms 'early possession' and 'early access' sound similar, they mean different things, and it's important to understand when, and how, they may affect you.
What is Early Possession?
For Queensland residential property transactions, early possession refers to the situation where a buyer is given complete possession of the property before settlement has taken place, and before they are the legal owner. This could be just a few hours before settlement, or it may be weeks or even months in advance depending on the circumstance.
Whilst it can sometimes be difficult to negotiate early possession (for reasons we'll discuss below), a buyer will generally seek early possession where, usually for logistical reasons, they need to move their belongings or need somewhere to live, prior to settlement.
It's important to remember that a seller is under no obligation to grant early possession unless a special condition has previously been included in the contract of sale. Often negotiations are required, as the seller may have intended to reside at the property until the day of settlement, or otherwise is concerned of the risks involved.
If early possession is granted, REIQ contract standard term 8.5 (for House & Land) or 8.6 (For Community Title Schemes) provides general terms of agreement between the buyer and seller. It is always recommend that any agreement between the parties include further provisions, and be in writing, in order to protect the parties.
Note that this only applies to REIQ contracts, so if you are buying off the plan or otherwise have an non-standard contract of sale, this is will not be applicable.
What is Early Access?
Early access is a related concept that allows the buyer access to the property for specific reasons, such as moving belongings to a specific area of the property. Early access provides specificity to what the buyer can and cannot do at the property prior to settlement.
It's important to note that 'early access' is different from 'access' as outlined under standard term 8.2, which relates to the seller's obligation to provide the buyer access to the property for the purposes of undertaking water metre readings, building and pest inspections, property valuations or smoke alarm inspections.
Every transaction, property, and the parties (buyer and seller) are unique, and their needs and goals may differ. This is why engaging reputable and professional legal representation is important, as they can guide you through your rights and obligations, and ensure you and the property are protected.
It is critical that, if you are legally represented, any request or approval for early access or possession is achieved through a lawyer, as you can place yourself and the safety of your belongings and the property at significant risk otherwise.
Advantages of Early Access & Early Possession
In regards to advantages of early access and early possession, it's important to recognise that it is the buyer who primarily benefits from this, by providing relief for storage or housing.
In some circumstances, particularly where there is a significant time between early possession and settlement, the seller may want to consider a fee for the privilege or residing or accessing the property, which may be advantageous for some sellers.
If the seller grants the buyer access or possession of the property prior to settlement, it's important to acknowledge that the buyer is obtaining the benefit of the property whilst the seller must wait until settlement to receive any settlement monies.
Disadvantages of Early Access & Early Possession
There are a range of considerations that both buyers and sellers should be aware of before requesting and/or granting early access or early possession. These are less so disadvantages, and more so critical things to remember before moving forward.
For The Seller
The legal ownership of title does not pass to the buyer until settlement has been completed
You will not receive settlement monies until settlement
If settlement does not occur, or if a dispute arises with the buyer, you may need to arrange for the removal of the buyer and/or their belongings from the property, which may or not cost you. You may also need to attend to repairing any damage caused by the buyer (this can be mitigated through an agreement - see below)
If a dispute or delay does arise, further legal and government costs may arise
For The Buyer
Generally, if you are granted early possession you will not be allowed to make alterations to the property until after settlement
The risk you place by storing your belongings at another residence which you may or may not be able to monitor
You will be responsible for maintaining the property in the same condition it was at possession until settlement has occurred
If the property is damaged (whether by you or something else), generally you will still be required to proceed to settlement
If included in an agreement for early possession, you may be responsible for council rates and water charges from the date of possession. This may be a significant burden for early possession that is weeks or months before settlement
In the past, we have seen requests for early access and early possession for the purposes of undertaking renovation works (e.g. to knock down an interior wall). It is never in the seller's best interest to allow such a request, as should settlement fail and the contract terminate, the condition and nature of the property has been significantly altered. In this circumstance, the risk is far too great for the seller.
What Should I Agree To?
As discussed, we always recommend the buyer and seller place specific terms in writing before either party proceeds with early access or early possession.
This doesn't always need to be a lengthy contract document - it may be as simple as a email between the parties - but ensures that the buyer understands their obligations and the seller understands their rights. It is critical that any terms are drafted by a lawyer to ensure they have been worded correctly.
It should outline, amongst other things, that:
The buyer accepts the property 'as is' This means the buyer accept the property in its current condition. This is to avoid later disputes as to the status of the property.
The buyer must maintain the property 'as is' until settlement As discussed before, this means that the buyer must keep the property in the same condition until settlement. This is to avoid later disputes should settlement be delayed or terminated
That early possession doesn't create a landlord-tenant relationship This is because a landlord-tenant relationship carries its own rights and obligations under law for the parties which are generally not appropriate in these circumstances
The buyer indemnifies the seller against damages or expenses incurred due to early possession
Simply put, if the buyer damages themselves or the property, they cannot make a claim against the seller. This might seem obvious, but without this, the seller may be liable as they are still the legal owner of the property.
The property must be insured to the seller's satisfaction
Under REIQ Contract standard term 8.1, the property is at the buyer's risk from 5pm on the first business day after the contract date. This means that the property should be insured by the buyer regardless, but it is in the seller's best interest to be satisfied with any insurance arrangements, and be provided with a copy of the certificate of currency.
In some circumstances, it may be appropriate that the buyer is required to vacate the property should the settlement date be delayed or the contract terminated.
The parties can negotiate any terms of early access or early possession, and they should consider their own needs and goals. You should always discuss any considerations with your lawyer to ensure you are making an informed decision, and understand what your are entering into.
As noted previously, the seller is under no obligation to grant early access or early possession unless it have been previously agreed under the contract.
How RHC Solicitors Can Assist You
With over 40+ years guiding individuals, couples and business through property transactions, we understand how important these transactions are. After all, for many people, property is the single most expensive purchase you will make in your lifetime.
We can help buyers and sellers understand their rights and obligations when considering early access or early possession, and our lawyers can help draft the appropriate and necessary terms to ensure you are protected.
Whether you're a current client, or just need some specific legal advice for your unique situation, we recommend contacting us so our lawyers can discuss your situation and how best to proceed.
Disclaimer: This publication is not intended to be comprehensive, nor does it constitute legal advice. We are unable to ensure the information is current and there is no guarantee in relation to accuracy. You should seek legal or other professional advice before acting or relying on any of the content of this publication. The views and/or opinions expressed in this publication is that of the author and may not necessarily represent the views and/or opinions of RHC Solicitors.
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