Understanding the differences between the types of pre-settlement access is vital to managing client expectations, protecting your vendor, and avoiding disputes, writes Attwood Marshall Lawyers’ Property and Commercial Law Senior Associate, Mieke Elzer.
In a fast-moving market, it’s common for buyers to request access to a property before settlement. Whether it’s to take measurements, arrange quotes, or even to move in early, these requests can put real estate agents in a difficult position.
However, not all pre-settlement access is the same, with each conferring different levels of risk for the vendor, as well as varying rights and responsibilities on the purchaser. As an agent, understanding these distinctions is crucial.
Early possession: the highest level of risk
Early possession involves the transfer of control and exclusive possession of the property to the purchaser before settlement. As part of the arrangement, the purchaser will generally become responsible for property maintenance, payment of rates and taxes, as well as assuming the risk of damage.
Early possession is the most legally significant arrangement as it transfers control and exclusive possession to the purchaser. That said there are still limits to what a purchaser who takes possession can do with the property and these are set out in the standard terms of the contract.
For example, the purchaser must not make alterations to the property without the vendor’s consent and must vacate the property if the contract is terminated.
While shifting responsibilities such as property maintenance, property costs, and the risk of damage to the purchaser may be viewed as beneficial for the vendor, the lack of control also exposes the vendor to potential risks, such as difficulty regaining possession if the sale does not proceed, or the purchaser identifying faults in the property and seeking concessions before settlement.
Case example: Amir v Chief Commissioner of State Revenue (2010)
The purchasers were granted early occupation under what was described as a “licence agreement.” However, the NSW Administrative Decisions Tribunal found that the purchasers had been given exclusive possession, which was a critical distinction. The arrangement was treated as more than a mere licence, leading to unexpected land tax consequences. The Tribunal determined that the purchasers were deemed the “owners” of the property for land tax purposes, which shifted the liability for land tax from the vendors to the purchasers.
To mitigate risks and avoid disputes
- Avoid early possession unless necessary.
- The vendor’s solicitor should draft specific terms in addition to the standard contract terms, clarifying that:
- upon taking possession of the property, the purchaser accepts the property in its present condition and state of repair and that they shall not make objections, requisitions, claims, or delay settlement on account of the property’s condition; and
- that the purchaser must maintain adequate building and contents insurance from the date of possession.
- Both parties should consider the risks with their solicitor before agreeing to any form of early possession.
Early occupation: Understanding the limitations
In contrast, early occupation merely allows the purchaser to reside at the property before settlement as a licensee. In this scenario the vendor remains in possession of the property and accordingly is liable for all costs and expenses related to the property.
Occupation is usually granted under a written licence agreement, which can set out specific terms which limit the purchaser’s rights. The agreement will usually also include conditions such as payment of a licence fee and compliance with specific terms.
Early occupation under licence provides the vendor with more control, however this comes at the cost of remaining liable for rates and expenses as well as risk for the property remaining with them until settlement has completed. In NSW, it is imperative that the vendor maintains insurance for the property up until settlement as any damage to the property is at the vendor’s risk.
Case example: Xu v Austino Property Development Pty Ltd (2013)
The purchaser was allowed to occupy the property before settlement under a written licence agreement. However, disputes arose regarding payments and obligations, leading to a breakdown in the relationship between the parties. The court ultimately found that the purchaser’s conduct in negotiating for early possession did not amount to an affirmation of the contract, and the purchaser retained the right to rescind the contract under the special condition allowing rescission if the Strata Plan of Subdivision was not registered by a specified date.
To mitigate risks and avoid disputes
- Avoid early occupation unless necessary.
- If early occupation is agreed upon, the vendor’s solicitor should draft a detailed licence agreement. The agreement should include specific terms, such as:
- Prohibiting the purchaser from making alterations without the vendor’s consent,
- Requiring the purchaser to maintain the property in its current condition,
- Specifying a reasonable timeframe for vacating the property in case of a breach or termination of the contract,
- Stating that the purchaser accepts the property in its current condition and will not raise objections or delay settlement based on its state of repair,
- Requiring the purchaser to maintain adequate insurance from the date of occupation.
- Both parties should consider the risks with their solicitor before agreeing to any form of early occupation.
Early access: safer, but not risk-free
Early access is often considered the simplest and safest form of entry before settlement. It grants the purchaser limited access to the property for specific purposes, such as inspections or repairs, without conferring any rights of possession or occupation. The vendor retains control of the property during this period and as the period of access to the property is limited, the risk of damage occurring is minimised.
While allowing early access may feel relatively low risk it is important for vendors to understand that things can go wrong.
Someone can be injured, or property damage can occur during an access visit. Disputes may arise over what activities were permitted. And if the scope of access has not been clearly defined, buyers may push well beyond what was intended. For example, they may bring furniture in, conduct unauthorised works, or spend so much time at the property that the line between “access” and “occupation” becomes blurred.
Case example: Centuria Property Funds Ltd v Thorn Australia Pty Ltd (2022)
A party was granted a contractual right of “early access” to carry out fit-out works before formal lease commencement. However, the agreement was subject to preconditions, and those conditions were not satisfied. The NSW Court of Appeal found that the early access right was not enforceable, leading to a dispute about rights, obligations, and timing.
This case highlights the danger of ambiguity. The court’s finding that the right of early access was not binding until several preconditions were met could have been avoided if steps had been taken to reduce the likelihood of misunderstanding or misrepresentation.
To mitigate risks and avoid disputes
- Access should only be provided for clearly defined purposes, with supervision required where appropriate;
- Any tradespeople accessing the property should be appropriately licensed and carry their own public liability insurance;
- Dates, times, and what is permitted to happen on the premises should be documented, and
- The vendor’s insurance should be confirmed to cover third-party entry.
Final thoughts
As an agent, you are often the first point of contact when a buyer asks, “Can I get the keys early?”
The safest answer (regardless of which type of access is being requested) is: “not without proper legal advice and a detailed written agreement.”
Early possession, occupation, and access each create different layers of risk and legal exposure for vendors. By understanding these differences and encouraging both parties to seek legal advice before any form of early entry is granted, agents can protect their clients and minimise the chance of pre-settlement disputes.
When in doubt, the answer is simple: get a lawyer involved before handing over the keys.
Attwood Marshall Lawyers – your property law partners
At Attwood Marshall Lawyers, our property and commercial team is proud to partner with many principals and agents across Queensland and New South Wales, helping resolve disputes and ensure that the settlement process proceeds smoothly and on time, without any surprises.
Our lawyers can ensure agreements between buyers or sellers are binding and that any terms and conditions required are tailored to suit individual circumstances. We service both Queensland and New South Wales districts.
For guidance on property and commercial matters, contact our Department Manager Sarah Jones, on direct line 07 5506 8233, email sjones@attwoodmarshall.com.au or call our 24/7 phone line on 1800 621 071.
