In recent years, more Australians have been buying property with lease agreement already in place. Whether you’re an investor seeking rental income from day one or a homeowner navigating a unique opportunity, this kind of purchase can offer several advantages. However, it’s essential to understand how lease agreements work, the legal responsibilities, and the risks involved. In this detailed guide, we will break down everything about buying property with lease agreement, focusing on Australian laws, tenant rights, leasehold conditions, and long-term investment planning.
What Does Buying Property with Lease Agreement Mean
In Australia, buying property with lease agreement means acquiring real estate where a lease contract is already in effect. The lease typically outlines an agreement between the current tenant and landlord, but once the property is sold, the new owner becomes the legal landlord. This arrangement is commonly known as buying with tenants in place.
This type of purchase is governed by each state or territory’s residential tenancy legislation, such as the Residential Tenancies Act 1997 (VIC) or the Residential Tenancies Act 2010 (NSW). These laws ensure tenants’ rights are protected during and after the transfer of ownership.
When you buy a property under an existing lease:
- You cannot ask tenants to vacate until the lease expires unless the lease contains a mutual break clause or the tenant agrees to leave early.
- You must uphold the original terms of the lease, including rental price, payment frequency, and duration.
- The bond paid by the tenant is transferred to you as the new landlord, often managed through a bond authority like NSW Fair Trading or the Victorian RTBA.
This model is most common in rental-heavy suburbs, where investor interest is strong, and demand for tenanted properties remains high. As a buyer, you inherit both the benefits and the obligations that come with the tenancy.
Why Investors Prefer Buying Property with Lease Agreement
Buying property with lease agreement is particularly attractive to property investors in Australia. With housing affordability continuing to be a challenge in major cities like Sydney and Melbourne, many residents are renting rather than buying, which creates a healthy rental market. Investors can take advantage of this trend by purchasing properties that are already generating rental income.
Here are key reasons why investors actively seek properties with leases in place:
Immediate Rental Returns
The most significant advantage is that the investment begins generating income from the day of settlement. There’s no need to find new tenants, which means no marketing costs, no property downtime, and immediate positive cash flow.
Reduced Risk and Uncertainty
When a property is already leased, there’s evidence of rental history, including the tenant’s reliability in paying rent and maintaining the property. This reduces the financial and behavioural uncertainties of leasing to unknown tenants.
Set and Stable Agreements
Existing lease agreements provide structure and predictability. As an investor, you know exactly how much rent is being paid, the frequency, and the responsibilities of both parties under the lease.
Valuable Long-Term Tenants
If the existing tenant has been in the property for an extended period, they may be more likely to renew the lease, creating long-term stability. Long-term tenants also tend to take better care of the property.
Tax Planning and Deductions
Since the property is already earning income, you can immediately begin claiming allowable tax deductions such as property management fees, interest on the investment loan, depreciation on fittings, and maintenance costs.
Investors also see this strategy as a way to diversify their portfolio without going through the initial setup phase of leasing, which includes tenant screening, advertising, and background checks.
Key Legal Considerations in Buying Property with Lease Agreement
In Australia, buying property with lease agreement involves a number of legal responsibilities and considerations. These legal obligations vary by state or territory but generally follow a similar framework designed to protect both the buyer and the tenant.
Understanding the Binding Nature of the Lease
One of the most important legal principles is that leases “run with the land.” This means that when a property changes ownership, the lease does not terminate. Instead, it continues under the same terms with the new owner stepping into the shoes of the previous landlord.
Even if the buyer wishes to use the property for personal residence, they must wait until the lease ends or negotiate an early termination with the tenant. Otherwise, evicting the tenant before the lease expiry could lead to legal consequences.
State-Specific Lease Laws
Each Australian state and territory has its own legislation governing rental agreements:
- NSW: Residential Tenancies Act 2010
- VIC: Residential Tenancies Act 1997
- QLD: Residential Tenancies and Rooming Accommodation Act 2008
- WA: Residential Tenancies Act 1987
- SA: Residential Tenancies Act 1995
- TAS: Residential Tenancy Act 1997
- ACT: Residential Tenancies Act 1997
- NT: Residential Tenancies Act 1999
Buyers must ensure they understand the relevant laws for the state in which they are purchasing the property. Legal advice is strongly recommended.
Disclosure Requirements
The seller is legally required to disclose the existence of any lease to the buyer. This is typically done through the contract of sale and accompanying disclosure documents. These documents will include:
- A copy of the existing lease
- Information about the bond
- Current rental amount and payment terms
- Details about rent increases, maintenance obligations, and special clauses
Buyers should review these documents carefully, ideally with a solicitor or conveyancer who can explain any complex terms.
Bond Transfer and Tenant Communications
The rental bond held for the property must be legally transferred to the new owner at settlement. This is handled through government authorities such as the Rental Bond Board (NSW) or the RTBA (VIC). At the same time, the tenant must be notified in writing of the change in ownership and the updated contact details of their new landlord or property manager.
Understanding the Risks of Buying Property with Lease Agreement
While buying property with lease agreement has its perks, there are also risks to evaluate:
- Problematic Tenants: If the tenant has been difficult or non-compliant, you may inherit the issue.
- Below-Market Rent: Some leases may lock the property into rent below the current market rate.
- Limited Renovation Opportunities: You can’t renovate or make significant changes while tenants are living in the property.
- Delayed Move-In: For homebuyers, you cannot move in until the lease ends unless the tenant agrees to leave early.
It’s crucial to carry out proper due diligence before committing to such a purchase.
How to Review a Lease Before Buying Property with Lease Agreement
Before buying property with lease agreement, request a copy of the lease and review these details carefully:
- Lease start and end date
- Rental amount and payment frequency
- Bond amount held
- Tenant obligations and special conditions
- Clauses for early termination or lease renewal
It’s wise to get legal advice from a property solicitor to interpret the lease terms correctly.
The Process of Buying Property with Lease Agreement in Australia
Here’s a simplified overview of the buying process:
Step 1: Due Diligence
Engage a conveyancer or solicitor. Review the property contract, lease documents, and compliance with tenancy laws.
Step 2: Property Inspection
Even with a lease in place, you have the right to inspect the property under certain conditions outlined in tenancy legislation.
Step 3: Make an Offer
Include in your offer that you understand the existing lease terms. The seller is required to provide a Section 32 (or equivalent disclosure) outlining tenancy details.
Step 4: Settlement
At settlement, rental income, bond, and tenant details are handed over. The buyer officially becomes the new landlord from this date.
Tax Implications When Buying Property with Lease Agreement
When buying property with lease agreement in Australia, you should understand how it affects your tax obligations:
- Rental Income Tax: The rental income must be declared on your tax return.
- Negative Gearing: You can claim deductions for interest on loans, property management fees, and maintenance costs.
- Depreciation: You may be eligible to claim depreciation on the building structure and fixtures.
Consult a tax advisor familiar with Australian real estate to maximise your returns and deductions.
Buying Commercial Property with Lease Agreement
The concept of buying property with lease agreement also applies in the commercial space. In fact, long-term leases with established businesses are considered very valuable by investors.
Common commercial tenants include:
- Cafes or retail stores
- Medical centres
- Warehousing businesses
- Service providers
Commercial lease agreements are usually longer than residential ones, often ranging from 3 to 10 years with options to renew. However, they come with higher due diligence needs, especially regarding rent reviews, outgoings, and tenant solvency.
Strata and Leasehold: Additional Layers in Buying Property with Lease Agreement
In some cases, buying property with lease agreement involves strata-titled units or leasehold land.
Strata Properties
You will also need to consider body corporate rules and levies. The lease does not override strata by-laws, so ensure the tenant complies with both.
Leasehold Properties
In cities like Canberra, leasehold properties are common. Here, you are essentially leasing the land from the government for a term, often 99 years. You still have ownership of the building but need to understand the leasehold restrictions and renewal conditions.
How Tenants Are Protected When Buying Property with Lease Agreement
Tenants have legal protections under state and territory laws. These include:
- Security of Tenure: Tenants cannot be evicted simply because of a sale.
- Same Lease Conditions: All terms of the original lease remain unchanged with the new owner.
- Proper Notice for Entry: New owners must give proper notice before entering the property for inspections or maintenance.
This ensures fairness and stability for renters, especially in areas facing housing shortages.
How Property Managers Assist in Buying Property with Lease Agreement
Hiring a professional property manager can simplify the process of buying property with lease agreement. They help with:
- Lease compliance and transition
- Communicating with existing tenants
- Organising rent payments and inspections
- Resolving disputes or maintenance issues
For investors new to the rental market, property managers are essential for ensuring the lease is upheld legally and efficiently.
Tips for First-Time Buyers Buying Property with Lease Agreement
If you’re new to buying property with lease agreement, consider these tips:
- Always consult a conveyancer or property solicitor
- Review tenant history and references
- Inspect the property during an agreed time with the tenant
- Negotiate terms clearly in the sale contract
- Factor in the lease when calculating ROI or occupancy plans
Making an informed decision will prevent costly surprises down the road.
The Future of Buying Property with Lease Agreement in Australia
With increasing urban density, strong rental markets, and more people renting long-term, buying property with lease agreement is likely to remain popular. Particularly in cities like Perth, Adelaide, and Hobart, investors are exploring this model for steady rental yields and capital appreciation.
The Australian property market continues to evolve, and for buyers who understand the rules, this approach can be both rewarding and sustainable
