Occasionally, buyers may discover that the sellers new place of residence won’t be ready for possession before settlement date for the sale arrives.

A common solution to this situation is renting back the property to the seller for a period of time, but is it a good idea?

Realistically, “rent-back” option is more likely to be negotiated in off-market sales where the sellers’ found buyers, faster than anticipated.

Agreeing to rent back the property to the seller can potentially give you, the buyer a stronger negotiating position. Especially if the seller wants to lock the sale of their existing property before locating their next.

By renting back, the seller can have a normal 30-day settlement and be comforted with the fact, that on settlement, they will have a chunk of cash on hand which will allow them to jump on opportunities without having to worry about being rushed into buying another property.

For buyers, deciding whether to offer a long settlement or a rent-back depends on the party’s circumstances, but ‘rent-back’ usually put the buyer in a stronger position if they don’t need the property as their own residence.

You can often negotiate a better price by offering a normal settlement with a rent-back than what you could if you were to offer long settlement period.

Also rent backs can be beneficial for the buyer as well, especially when the property is for investment purposes. A rent back agreement means that the buyers does not have to look for a tenant on settlement.

On the matter of tenancy agreement, it’s imperative that you engage a property manager and get a formal contract with the seller to prevent any potential issues.

The most important thing in any arrangement is to ensure the terms are legal, clear and precise. It’s essential that both parties understand their obligations under any such arrangement.

One of the risks with renting back a property, many sellers do not rent for a long time and often misunderstand their rights and responsibilities as well as those of the landlord and property manager.

It’s important for the tenancy agreement to be explained in detail to the seller to prevent any potential break lease during the contracted tenancy period and an entry condition report to be completed and held by the renting agent.

The entry condition report is the only piece of evidence that the new owner has to say what state that property should be left in by the sell cum tenant when they vacate.

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This article does not constitute advice; readers should seek independent and personalised counsel from an appropriate trusted adviser that specialises in property, a tax accountant and property or interior design specialist.