A rent-to-buy arrangement is an arrangement under which one or more people can purchase a property while occupying it.
Rent-to-buy arrangements include two main components:
- The ‘rent’ part—where a person occupies a property for a fee (including rent and other payments for the occupation of the property); and
- The ‘buy’ part—where a person enters into a contract that provides the right for that person to purchase the land (which can only be exercised after a person has occupied the property for more than six months). Rent-to-buy payments are then made, which can include a deposit and other payments (and the interest earned on those payments).
Requirements a rent-to-buy arrangement must meet
The prescribed requirements include that:
- Any contract for a rent-to-buy arrangement must be in writing.
- Rent-to-buy payments can only be used to reduce the purchaser’s debt.
- The sale deed, meaning a contract that gives a person the right to purchase the residential land (usually described in the contract as an option to purchase), and allows a person to make rent-to-buy payments, must include:
- when the purchaser will become entitled to the transfer of land
- that the right to purchase the land (the option to purchase) is exercisable when the purchaser chooses
- when the sale deed will become unconditional (meaning the point at which the purchaser cannot withdraw from the contract without some financial consequences)
- that rent-to-buy payments can only be used to reduce the purchaser’s debt, and
- the purchase price of the property.
- Rent-to-buy payments received by a vendor must be paid within seven days into a trust account held by either:
- an estate agent
- conveyancer or legal practitioner, or
- a special purpose account at an authorised deposit taking institution (an authorised bank or other financial institution) nominated by the vendor and purchaser for the rent-to-buy arrangement.
- If the vendor and purchaser use a special purpose account, that account must not contain any money other than the rent-to-buy payments from each purchaser in that rent-to-buy arrangement.
- Money must be held on trust for the purchasers until the sale deed becomes unconditional.
- Interest earned in the special purpose bank account must be held on trust for the purchasers in proportion to the money paid into that account on behalf of each purchaser.
- Money held in a special purpose account can only be drawn upon with the signatures of both the purchaser and vendor (or the personal representative of the vendor or purchaser).
- The purchaser can terminate the sale deed at any time before that contract becomes unconditional.
- If the purchaser terminates of the sale deed (before it becomes unconditional), the purchaser is:
- relieved of any liability linked to the rent-to-buy arrangement
- entitled to a full refund of the rent-to-buy payments within 60 days.
A terms contract for the sale of land is a contract:
- where a seller and buyer agree that the buyer will pay the purchase price of the property in instalments prior to the seller completing a transfer of land in the buyer’s favour, or
- where the purchaser is to possess the land or receive rents and profits before the purchaser becomes entitled to the transfer of land.
Selling under a terms contract
Under a terms contract, where the sale price is less than $750,000, you cannot knowingly sell, or arrange or broker the sale of, or induce a person to enter into the sale of any residential land.
The penalty for an individual a fine of more than $39,000 (240 penalty units), two years imprisonment, or both.
The penalty for a body corporate is a fine of more than $198,000 (1200) penalty units.
Advertising under a terms contract
For knowingly advertising the sale of any residential land under a terms contract, where the sale price is less than $750,000 the penalty:
- for a person is a fine of more than $19,000 (120 penalty units)
- for a body corporate is more than $82,000 (500 penalty units).
Prior to entering into a rent-to-buy arrangement or a terms contract, it is recommended that you obtain:
- independent financial advice from a financial advisor
- independent legal advice from a legal practitioner about the effect of, and your rights and obligations under, any terms contract or contract under a rent-to-buy arrangement that you enter into.