About 30% of Victorian residential sales involve a tenant in possession — a renter living in the property at the time of the contract. Whether you want vacant possession, want to keep the tenant, or want to change tenancy terms after settlement, the rules are governed by the Residential Tenancies Act 1997 (Vic). Get the contract wrong and you can be locked into an existing tenancy for 12+ months at below-market rent, or face a $10,000+ Compensation Order at VCAT for unlawful eviction.
This guide covers vacant possession vs continuing tenancy, the notice periods, bond transfer mechanics, and the contract terms every buyer should specify.
Two scenarios — and they’re very different
Scenario 1: Vacant possession at settlement
Most owner-occupier buyers want vacant possession. The contract should say so explicitly. Standard language: “The vendor must deliver vacant possession of the property at settlement.”
For this to work, the vendor must give the tenant correct notice before settlement under Part 4 of the RTA 1997. The notice period depends on the tenancy type and the reason given:
| Tenancy type | Reason | Notice period |
|---|---|---|
| Periodic (rolling month) | Sale | 60 days |
| Fixed-term — end of term | Not renewing | 28+ days before end |
| Fixed-term — break | Sale | Cannot break unless at end |
| Periodic / fixed | Vendor moving in | 60 days |
| Periodic / fixed | Major renovation / demolition | 60 days |
The critical point: a fixed-term lease usually cannot be broken early just because the property is sold. If you sign a contract for vacant possession but the vendor has a tenant on a 12-month lease with 8 months remaining, the vendor cannot deliver — and you may have a claim for breach of contract.
Scenario 2: Subject to existing tenancy
Investment buyers often want to keep the tenant. The contract should say: “The property is sold subject to the existing tenancy.”
On settlement, you become the new landlord. The tenant’s lease continues unchanged. You inherit:
- The lease terms (rent, term, conditions)
- The bond (transferred to you via the Residential Tenancies Bond Authority)
- Any rent in advance or arrears
- Any maintenance obligations and pending requests
- Any VCAT proceedings or disputes
Bond transfer mechanics
The bond is held by the Residential Tenancies Bond Authority (RTBA). At settlement, the seller’s solicitor lodges a bond transfer request with the RTBA, naming you as the new bondholder. The process:
- Vendor’s solicitor prepares a Bond Transfer form
- Tenant signs (mandatory)
- Old landlord (vendor) signs
- New landlord (you) signs
- RTBA processes within 14 days
If the tenant won’t sign the bond transfer, the bond stays with the vendor and you receive the bond amount in cash at settlement.
Inspection rights — limits
Until settlement, you cannot inspect the property without the tenant’s consent. Even after settlement, you cannot enter without 24-hour written notice for routine inspections, and inspections are limited to once every 6 months. Plan for this:
- Pre-settlement inspection rights are by tenant agreement only
- Building inspection requires vendor + tenant consent
- Pest inspection same rule
- Photography for re-letting requires tenant consent
Rent in arrears or in advance
At settlement, rent is adjusted between vendor and buyer:
- Rent paid in advance covering periods after settlement is credited to you
- Rent in arrears at settlement is generally retained by the vendor as a debt to recover from the tenant
- Bond covers a tenant default but only at end of tenancy
Section 32 disclosures specific to tenanted properties
- The lease document and any variations
- The bond reference number and amount
- Rent rate and payment cycle
- Last rent increase date and amount
- Outstanding repairs and maintenance requests
- Any pending VCAT proceedings
- Notice already served on tenant
Special conditions to negotiate
- Vacant possession warranty.“The vendor warrants that the tenant will vacate by [date] and the property will be delivered with vacant possession at settlement.”
- Right to rescind. If vacant possession is not delivered, the buyer may rescind and recover the deposit plus reasonable costs.
- Holding rent.If settlement is delayed because the tenant won’t leave, the vendor pays the buyer holding rent at the property’s market rental rate.
- Tenant cooperation. Vendor warrants the tenant will cooperate with pre-settlement inspections.
- Bond delivery. Vendor delivers a fully completed bond transfer at settlement.
Common pitfalls
- Tenant has long-fixed-term lease. Locked into existing rate and terms for the remaining term. Below-market rent costs you 2–4% rental yield until the tenancy expires.
- Tenant has rent-control protections. Some VCAT orders cap rent increases for specific tenancies.
- Tenant on social housing arrangements. Special rules apply under the RTA 1997 and Housing Act 1983.
- Tenant disputes already in progress. You inherit the dispute. Pending VCAT applications continue against you as the new landlord.
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