When your tenant dies

PORTFOLIO POINT: What happens to the rent or to the bond money? What do you tell subsequent tenants?

Bronwyn Evans, co-owner of Darling Downs Realty in Queensland, has dealt with two situations recently where the sole tenant has died in properties she managed.

In one case, the property was under contract to be sold (the sale proceeded and the new owners took vacant possession); in the other case the tenant died within the property and nobody was aware he’d died until two weeks later.

“Everything has to be handled fairly sensitively,” Evans says. “Somebody has died and while it’s our role to work for our landlords and our landlords first, we’ve also got to be sensitive to the fact that there may be a family involved.

“These are very emotional times. People are dealing with their grief and with the practical side, things such as funerals, so everything has to be handled softly, softly.”

Evans says a sensitive approach would “get the best outcome for everyone, which is the property ready to rent again”.

Legislation relating to a tenant’s death varies between states. In Queensland, laws that came into effect this year state that if a sole tenant dies, the tenancy agreement will end two weeks after the tenant’s personal representative or relative gives written notice that the agreement ends because of the tenant’s death. If no notice is given, the agreement ends one month after the tenant’s death.

In Victoria, a notice period of 28 days applies. The situation in other states and territories may vary.

Evans says that if all parties agree, they could terminate the agreement at whatever time suited. For instance, she says that in the case of the tenant who died within a property she managed, the landlord and the tenant’s family agreed to terminate the agreement almost as soon as they found out about the death.

She notes that the landlord’s insurance covered the damage that had been caused to the property by the tenant’s body being in the property for two weeks after he died. The bill included cleaning, replacing carpets and curtains.

Investors should check their insurance policies are adequate, and understand whether their landlord’s insurance will cover them for loss of rent in the case of the death of a tenant.

Carolyn Wright, director of Your Property Manager in Victoria, says every investor would handle the death of a tenant differently, some thinking with their head and hip pocket, others with their heart.

“The death of a tenant is unpleasant for all parties concerned but owning a rental property is often a 'business’ for many people,” Wright says. “Some agents will encourage an owner to give monetary leniency to the deceased family due to the unfortunate circumstances, however an owner isn’t obliged to do so and is entitled to collect their rent as per the original contract.

“If a property owner relies on those funds to meet a monthly mortgage payment, they may very well need the pennies and with the sudden death of a tenant the landlord may not have the 'buffer’ they need if the rent just suddenly stopped.”

Leah Calnan, director of Metro Property Management in Victoria, says most tenants’ families would offer to sign over the full bond money to the owner.

She says a death certificate would need to be presented for the bond authority to release the money to the landlord.

As for finding new tenants, Wright says that if asked where the previous tenant had gone, property managers are obliged to explain that they had died in the property. Evans says her office’s policy is to tell new tenants and that this had never caused a problem.

“We find most of the disclosure rules apply to the sale of properties, but we’ve continued that practice into property management, just to be honest and to let them know what’s occurred,” she says.

This article was first published in Australian Property Investor magazine and has been reproduced with permission.