Buying a Property Subject to Tenancy — What You Need to Know

 
 

Buying a Tenanted Property in Victoria? It Might Not Meet Rental Standards — And That Could Cost You

When you buy a tenanted property in Victoria, it’s easy to assume that the rent’s rolling in and the place is compliant. But under Victoria’s mandatory minimum rental standards, that assumption can be dangerous — and expensive.

Just because a property is currently tenanted doesn’t mean it’s legally rentable under today’s laws.

At Victorian Property Settlements, we’ve seen buyers walk straight into trouble — buying properties that appear occupied and compliant, only to find out post-settlement they’re unlettable without serious upgrades.

Here’s what you need to know — and what minimum conditions you should insert into your contract before you sign.

1. The Lease Continues — But That Doesn’t Mean It’s Legal

Yes, the lease carries over to the purchaser. Yes, the tenant stays on. But if the property is later assessed as non-compliant, you, as the new landlord, may be:

  • Required to upgrade the property to meet minimum rental standards

  • Unable to renew the lease or re-let the property when the tenant vacates

  • Subject to enforcement action or compensation claims under the Residential Tenancies Act 1997 (Vic)

2. The Risk: Buying a Property That Can’t Legally Be Rented

Example 1 — No Compliant Cooling Option:
A buyer purchased a compact apartment in Melbourne CBD. The tenant was still in place on a month-to-month lease. But once they moved out, the new owner discovered the unit couldn’t legally be re-let — there was no compliant fixed cooling. Because of heritage overlay restrictions and the unit’s design, there was nowhere to install an external condenser. Portable appliances didn’t satisfy the standard. The buyer had to leave the unit vacant or spend over $18,000 modifying walls and windows — subject to VCAT permission — to even attempt compliance.

Example 2 — No Legal Second Exit in South Melbourne:
Another client purchased a heritage-listed apartment in a mid-rise building. Ground floor unit. Tenant in place. The windows had iron security bars (required under heritage overlay) and only one door exited to the common hall. When the tenant left, a new property manager advised that because the building exceeded a certain number of storeys, the apartment legally required two compliant exits under fire safety standards. With only one point of egress — it could no longer be let at all.

3. Minimum Standards Apply — Even Mid-Lease

Under current law, all rental properties must meet minimum standards covering:

  • Lockable external doors

  • Fixed heating in the living area

  • Ventilation

  • Window coverings

  • Mould and damp

  • Privacy

  • Electrical safety

  • Basic kitchen and bathroom facilities

  • Energy-efficient lighting and fixed cooling (in many cases)

If the property doesn’t comply, you’ll have to rectify the issue before re-letting. That could mean:

  • New heating and cooling systems

  • Changes to structure or egress

  • Additional fire or safety works

  • Costly electrical upgrades

Just because a tenant is in place now doesn't mean the next lease can be issued.

4. What You Must Add to the Contract — Minimum Condition We Recommend

When buying subject to tenancy, we strongly recommend inserting the following special condition:

“The purchaser (or their nominated property manager) shall have the right to inspect the property prior to settlement to assess compliance with the minimum rental standards prescribed under the Residential Tenancies Act 1997 (Vic) and Residential Tenancies Regulations 2021 (Vic). If the property is found to be non-compliant and likely to require upgrades exceeding $5,000 to meet those standards, the purchaser may elect to rescind the contract or delay settlement until compliance is achieved.”

This gives the buyer time to assess risk — and a legal out if the property is a trap.

5. Our Advice to Buyers — Don’t Trust That a Lease Means Compliance

At Victorian Property Settlements, we always:

✅ Confirm whether the contract is subject to tenancy or vacant possession
✅ Review the lease, bond, rent status and tenant history
✅ Check if the property is likely to fall short of minimum standards
✅ Insert inspection rights for the incoming property manager
✅ Flag structural or overlay limitations (e.g. heritage or fire access issues)

Buying a Tenanted Property? Protect Yourself First.

If you're planning to rent the property long-term, don’t assume the current lease gives you a green light.

We’ll help you insert clear, enforceable protections so you don’t buy into a compliance headache.

Click here to request a contract review before you sign

Victorian Property Settlements
Trusted by Victorian buyers and sellers for over 25 years
www.victorianpropertysettlements.com.au