Early Possession, Licence Fees & Transfer of Risk in NSW Property Settlement
Early possession allows a purchaser to move into a property before settlement is finalised, with the vendor's agreement. It's only available for properties sold with vacant possession, and it shifts the risk of damage to the purchaser from the date they take occupancy.
When selling or purchasing a property in NSW, there are 2 options on the front page of any contract as to how the property will be sold: either with 'Vacant Possession' or 'Subject to Existing Tenancy'. The meanings of these can be found in our handy Conveyancing Dictionary (link).
Where a property is sold with 'Vacant Possession', a purchaser can request to take early possession of the property before settlement — meaning they ask to move in before the transaction has completed. This can only occur in properties that are not already leased to a tenant.
Why Would a Purchaser Request Early Possession?
A request for early access to the property before the agreed settlement date can be for any reason. A common reason for this request is where a purchaser has been unable to negotiate simultaneous settlements (link to article) or wants to mitigate the risks involved in such transactions.
Who Is Responsible for Damage During Early Possession?
Once a purchaser is provided with early possession of the property, the risk of any damages that may occur from that date forward is passed from the Vendor to the Purchaser. A Purchaser cannot claim for any damages once they gain access and begin using the property.
Because the Purchaser is accepting the property in the present state of condition and repair as at the date of occupancy, it is important that they have all the necessary insurances in place before taking possession. For in-depth advice on this matter, you should get in touch with MILL today.
What Is a Licence Fee?
As the property is technically still owned by the Vendor and the transaction has not been completed, an agreement must be drafted by the solicitors/conveyancers to protect the rights of the Vendor and also to outline any agreed fees — this is referred to as a Licence Fee.
A Licence Fee does not create a Landlord/Tenant relationship. Instead, it compensates the Vendor and provides further financial security (on top of the deposit) just in case settlement falls through.
Frequently Asked Questions
Can a purchaser request early possession on any NSW property? No. Early possession is only available where the property is being sold with Vacant Possession. It cannot apply to properties sold Subject to Existing Tenancy, as a tenant is already in occupation.
Who is responsible for damage during early possession? Once early possession is granted, responsibility for the property passes from the Vendor to the Purchaser. The Purchaser accepts the property in its condition as at the date of occupancy and cannot claim for damage occurring after that date.
Does a Licence Fee create a tenancy? No. A Licence Fee arrangement does not create a Landlord/Tenant relationship. It's a contractual mechanism that compensates the Vendor and provides additional financial security ahead of settlement.
What happens to the Licence Fee if settlement falls through? The Licence Fee provides the Vendor with financial protection, on top of the deposit, in the event settlement does not proceed. Speak with your conveyancer about how this is structured in your specific contract.
Do I need insurance before taking early possession? Yes. Because risk transfers to the Purchaser from the date of occupancy, appropriate insurance should be in place before moving in. Contact MILL for tailored advice on your circumstances.
Have questions about early possession, licence fees, or NSW property settlement? Get in touch with Mothers in Law Lawyers today for tailored conveyancing advice.
