Owner, do not enter into a ‘rent-to-buy’ agreement. You can be badly burnt and have no rights at law. Especially if your tenant makes any improvement – with or without your knowledge or approval – that they then claim as ‘equity’ in the property.
These are my experience with a Rent-to-buy agreement in Queensland. In 2010, my mother died and left her house to my sister and I. We cleaned it up and put it on the market for $342k. We had a few offers which fell through. My cousin contacted us and suggested we might like to do a rent-to-buy for his daughter CR. It looked as though we were doing a good turn with no risk to us and went ahead. Under the terms of the rent-to-buy with CR and her partner MGK, they paid a deposit ($15k) and undertook to buy in two years for $327k ($342k – $15k). They paid rent (under a tenancy agreement) which we set to cover our forgone interest on $327k. They agreed to pay rates and water. Because they were intending to buy and the property needed work, we allowed ‘improvements to be carried out following our written consent’. All very amicable and huge good will.
All went well for the first 9 months – while CR was with MGK. She walked out of the abusive relationship in early 2012. Good for her, and one of the good things to come out of this is that CR escaped from MGK. MGK turned out to be a pathological liar and bully. He claimed to have a builder’s license (which he did not). He removed (without our knowledge) the pool safety fence and electrical ‘earth stake’. He installed (without our knowledge) a new kitchen – which he did not finish. He failed to pay rent or rates. He smashed up the house, held noisy drunken parties, threw a woman through a window, smashed windows, doors, walls, smoke alarms. We knew none of this.
The rent-to-buy ran out in May 3013. MGK did not buy and made no effort to contact us. His tenancy agreement expired and reverted to an ‘on-going tenancy’. He did not answer phone calls or respond to e-mails. We tried and failed to make contact through his father (who lied to us). A few months passed and we became anxious about what we could do. MGK was not paying rent or the rates. Our solicitor tried to get rent, rates and payment of the option to buy. No response from MGK except promises of ‘payment today’ – which never happened.
He would not leave and would not pay us. We were stuck and went to QCAT (Queensland Civil and Administrative Tribunal) to have him evicted. The ‘member’ on the bench at QCAT would not hear the case because MGK claimed that his work had improved the value of the property (even though some of it was illegal and it was done without our knowledge or approval) and he therefore had ‘equity’ in the house. MGK promised to leave (but made no effort to do so). The case was adjourned twice to give MGK ‘time to leave’. If he did not leave of his own accord, we were faced with having to go to the Supreme Court to get him out – all because he had done some work on the house and claimed to have ‘equity’.
That ‘equity’ claim is the big flaw in any rent-to-buy agreement. Even though we had a clause stating that any ‘work done on the property would be forfeit if the option to buy was not exercised’, that clause was declared to be invalid because we ‘may have been unjustly enriching’ ourselves by not paying MGK for his work – regardless of the value of the work or our knowledge of the work or our permission to carry out the work. (Similar to someone painting your house without your knowledge, sending you the bill and claiming they owned part of the house because of their work.) We had nothing to stand on and looked to be in a very precarious position.
Fortunately for us, our solicitor worked very hard to ‘ease MGK out’ and he did it. MGK vacated the property on 19 Dec 2013. He left it in a disgusting state: 4 smashed windows, doors kicked in, holes punched in the walls, junk everywhere, the pool green and full of tadpoles, superficial damage in every room and everywhere. The house was unlocked, no pool fence and no gate or barrier of any kind between the road and the pool – nothing to prevent a child from walking in a drowning in the pool. We began cleaning, clearing junk, cleaning the pool and getting windows fixed and properly securing the propety.
After discussions with Real Estate Agents, we sold the property, ‘as is’ for $320k. Therefore, because MGK had lived in the house for two years, he devalued the property by $22k. He owned us about $8k in rent and unpaid rates. Our legal fee to get him out were about $12k. Securing the house cost about $3k – he had smashed or removed all locks. MGK has cost us about $45k.
We were lucky to keep the loss to just that. The interpretation of the law by QCAT meant that we had few options except spending more money as soon as MGK claimed ‘equity’ by his ‘improvements’.
So! If you owe a property, do not be tempted to enter into a rent-to-buy agreement. It could cost you.
