License Agreements
If you have recently purchased a property and would like to move in before the settlement date, a license agreement may be an appropriate option for you.
WHAT IS A LICENSE AGREEMENT?
It is important to note that a license agreement is not a rental/tenancy agreement.
Rather, it is an agreement between the Purchaser (Licensee) and the Vendor (Licensor) which allows the Purchaser exclusive possession/access to the property prior to settlement.
Ownership does not pass to the Purchaser until the contractual settlement date.
The Vendor obtains the right to reclaim the property prior to settlement (should the Purchaser breach the license agreement).
A license agreement must be agreed upon by the Vendor if the Purchaser wishes to gain early possession of the property.
HOW DOES THIS IMPACT THE PURCHASER?
There are obligations and risks involved with entering into a license agreement,, including but not limited to:
The Purchaser cannot conduct any renovations or make any alterations to the property until settlement has occurred.
The Purchaser must maintain the property in the same condition. If the settlement does not proceed and the Purchaser has altered or damaged the property, they could be liable to compensate the Vendor.
The Purchaser should complete their final inspection prior to signing the license agreement and before taking possession of the property.
The license agreement will stipulate that the Purchaser must adequately insure the property from the date of possession.
The Purchaser must pay all rates and outgoings from the date of possession e.g. Council and Water rates.
If settlement does not proceed, the Purchaser must vacate the property immediately.
The Vendor may charge the Purchaser a weekly fee for the license period.
HOW DOES THIS IMPACT THE VENDOR?
The Vendor is under no obligation to allow the Purchaser early possession of the property.
However, should they agree to do so, the Vendor could be impacted by any of the following:
It could be difficult for the Vendor to regain possession of their property in the unlikely event that settlement did not proceed.
There is always the risk, the Purchaser may undertake minor renovations to the property prior to settlement.
The above issues may occur despite the license agreement strictly prohibiting them.
WHO PREPARES THE LICENSE AGREEMENT AND WHAT ARE THE COST ASSOCIATED?
The Purchaser or Vendor’s representative can prepare the license agreement and both parties should read and understand the terms stated in the agreement. It is imperative that all parties are aware of their rights and their obligations under the agreement.
Ordinarily, the license agreement is prepared by the Vendor’s representative and is sent to the Purchaser’s representative for their review.
The Vendor’s representative will usually charge a fee to prepare the license agreement and this fee is typically passed on to the Purchaser (having requested the agreement).
The Vendor may decide to charge the Purchaser “rent” and this is ordinarily agreed upon before the license agreement is signed. This rent is typically paid by the Purchaser to the Vendor at settlement.
If you have any further queries regarding license agreements, please contact our team.
*The above information is general advice ONLY and not tailored to your personal circumstances. Should you require specific advice, you should contact Blueprint Legal.