Ep 37. Now that Contracts are exchanged, can I start renovating?
In this episode, Michelle answers a question she is often asked, now that contracts are exchanged can I start renovating?
Here’s what you’ll learn from today’s episode:
Why you can’t start renovations before settlement
The benefits of negotiating a shorter settlement to assist with renovations
What is access under license and what does it mean?
Why strata can complicate the renovation process and how you can help
Speakers in today’s episode:
Michelle May - Michelle May Buyers Agents
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VIEW TRANSCRIPT
Hi, and welcome to the Buy Your Side Podcast, the property podcast to help you make smarter property buying decisions. Today, I wanted to talk to you about a question I get asked a lot by my buyers, and perhaps it has crossed your mind as well, now that you're actively looking for property out there. Are you allowed to start renovating once contracts have exchanged?
Now, the short answer to that is no, or highly unlikely. But let me walk you through the steps, because I get asked this question a lot by my clients, because we obviously go through properties that potentially need a little bit of an update, new flooring or perhaps just a little bit of painting to, you know, the full works, needing the whole kitchen ripped out or new floor plan, et cetera.
And then of course, time efficiency always comes into play where people have to move out of their rental and in order to speed things up, they're thinking, oh, maybe we can start renovating before we get the keys officially at completion. So, whilst that sounds really like a great idea, the reality of it, that is, it's a lot more complicated than that, and it's not just a simple asking the vendor, because legally you are not the owner until settlement or completion, which means that the vendor actually has no obligation to provide the purchaser access prior to this settlement taking place other than one inspection, which we call the pre-settlement inspection.
So when you exchange on a property, typically in New South Wales, it's a 42 day settlement, so six weeks, during which time you may access the property once. I always recommend you do this after the owners or the tenants have moved out so the property is completely vacant, so you can actually see what you've got and that no things have been left behind or ripped out, whatever the case may be.
And so we typically do that two or three days prior to settlement, but any other time in between, they don't actually have to provide you access at all. In practice, you know, it does happen quite often that we'll get an extra inspection here and there to do measurements, maybe do a quote, but it is highly unlikely that the vendor will actually consent to allow the purchaser access between exchanging completion to undertake any significant renovation.
As you know, the vendor is still responsible for the property and for its insurance during that period, and obviously, if the contract were to fall through, they could be left with a property where there's no longer a kitchen in place, or hideous flooring, or you've decided to paint the property purple. I mean, you know, each to their own, but I'm not sure that the vendor would be very happy with that.
So that is something to consider. What you have to then do is then try and get the quotes done during the period between exchange and settlement and ask if they will allow access for that, and then just plan it after settlement as much as you can to have, you know, those efficiencies in play.
Like I said, as soon as you get the keys, maybe the day or so after, start getting the painters in and whoever you want to have lined up. I wouldn't recommend doing it on the date of settlement because there can always be a delay with settlement occurring. Settlements usually don't occur until about three o'clock in the afternoon anyway, so be mindful of that.
But yes, unfortunately most vendors, particularly after speaking with their solicitors, sometimes they'll be like, yeah, sure, no problem you can come in and paint. But after speaking with their solicitors, the solicitors very often say, well, no, this is not a good idea, because it is a risk for you obviously to come through, as I mentioned before.
Now when it comes to buying an apartment, there is a complicated layer there as well, which makes it even more tricky, and that is strata. You would have to contact the strata manager to say, Hey, I want to change my flooring. And this actually happened to me with a client recently.
The client wanted to replace the carpet in both bedrooms, and he was adamant that he needed to have that done prior to settlement. And so I had to talk him through the steps about why this was not an option because 99% of the time strata management will not speak to a buyer until settlement occurs.
Even though you may have exchanged contracts, they will not look at your paperwork, you know, your under flooring certificates, what kind of flooring you're going to get done, or what painter are you're going to be using, et cetera, until they have had confirmation that the property is now legally in your name.
And so with strata, of course, you need to ask for permission with everything that you do. So in some cases, they'll need to have an extraordinary meeting with the executive committee to say, yes, we'll create this bylaw because you, you want to do X, Y, Zs, you know, renovations. So therefore you can't just start doing things without letting strata know.
So there's a certain protocol there that you need to adhere to. So make sure that, you know, What these rules are within the building that you are buying. And again, usually the strata manager will not speak to you and talk to you about those rules until you are the legal owner within that building.
Now, a couple of things that you may want to consider as alternatives. If you do need to renovate and update the property, you can potentially negotiate a shorter settlement with the vendor. So you can get into the property sooner. You know, again, normally it's six weeks, potentially you can ask for four weeks, but do make sure that you check with your lender before you just offer that to the vendor, because your lender may not be able to do it within four weeks or less.
I think four weeks typically is the level that they're comfortable at, but just make sure that they can actually settle for you in that period of time, because obviously you don't want to delay settlement because every day that you delay your settlement, you will be up for a late fee, but that's one option, negotiating a shorter settlement.
The other thing you could potentially negotiate is to take possession prior to completion. That's called access under license, and that would obviously need to be set up between the lawyers. So there's an agreement in place. You know, it's never a good idea to just do things verbally, and that would involve a fee as well, but it would usually also involve a fee from a token rent.
Right or license fee to the vendor, but then you would still have to negotiate the renovation of whatever it is you're planning. I wouldn't recommend just moving in, taking that possession prior to completion and then just doing what you like because, you know, essentially it is not yours yet, until settlement. But that is an option that you can potentially discuss with your solicitor and then put it to the vendor.
It might suit them very well to have you in earlier so that you can start paying rent if the property is already vacant, for example, something worth considering.
So, just remember that if you see a nice property that needs renovations, you do have to take that time to wait until settlement in general before you can start yielding that sledge hammer or that paintbrush.
I hope that helps and gives you some perspective of, you know, your timelines. But if you have any more questions, do get in touch with me. hello@buyyourside.com.au
But I'm also on TikTok and Instagram. Feel free to drop me a message there anytime.
Thank you for listening, and until next time.