Should you agree to a Rent Back to Seller clause when buying a home?

Sellers Renting Back, also known as a leaseback arrangement, occurs when a seller sells their property but remains in possession as a tenant under a rental agreement with the buyer. But will the rental price differ from the market price, what is the maximum term of such a lease, and how are such conditions written into the contract?

Director of GM Law, Gerard Pagliaro shares his thoughts on this matter:

1. How long can a rent-back agreement last in Queensland?

Sellers Renting Back allows the seller to continue living in the home for an agreed period, typically while they arrange alternative accommodation. Such arrangements must comply with the Residential Tenancies and Rooming Accommodation Act 2008 (Qld) if they extend beyond 6 weeks.

In Queensland, short-term agreements may not require a formal tenancy agreement, but anything longer generally falls under standard tenancy laws. Other states follow similar principles, with tenancy legislation applying to agreements exceeding short-term transitional periods. Agreements can last months or years, depending on negotiations.

2. Should you agree to a Rent Back to Seller clause when buying a home?

There are a few things you should think about before making such a decision:

1. As a buyer, you won’t be able to move in immediately. If you plan to occupy the property, this could disrupt your relocation timeline.
2. If the rent-back agreement lasting over 6 weeks you will need appropriate landlord insurance, and your standard home insurance may not cover a leaseback situation. There could also be liability risks if the seller is injured on the property after settlement.
3. If the rent-back is lengthy, it may impact stamp duty concessions, such as first-home buyer exemptions. Stamp duty in Queensland is calculated based on the dutiable value of the property and is not generally affected by a short-term rent-back agreement. However, if the rent-back is long-term or structured as an investment arrangement, the Office of State Revenue may consider it a commercial lease, which could impact duty assessments or land tax liabilities.

3. How is it written in contracts for the purchase of a house in Queensland?

Depending on the specific conditions, the wording in the contract may differ. Below is just one possible example:

“The parties agree that upon settlement, the Seller will remain in possession of the property as a tenant for a period of [X] weeks at a rental of [$X] per week. The Seller and Buyer agree to execute a residential tenancy agreement in accordance with Annexure A of the contract.”

4. How much does a leaseback usually cost? Is it lower than a standard lease?

Leaseback rental rates are negotiable but often align with market rent. Some buyers may offer reduced rent as an incentive to secure the sale, while others charge market rates or a premium to compensate for deferred possession. If structured as a commercial leaseback, costs could be higher due to additional legal and tax considerations.