WCR10-Vendor Terms Rent to Buy Resource for Workers
On 1 March 2020, changes to the law were made regarding vendor terms contracts and rent-to-buy arrangements for homes. This factsheet provides information regarding these changes.
Vendor terms contracts and rent-to-buy arrangements are often marketed to people in financial difficulty as a way to buy a home without needing a bank loan. However they can be very risky – buyers may pay a lot of money to the seller, but can be evicted if they can’t afford to keep paying or can’t get a loan from a bank.
If you have a client who has signed up to a vendor terms contract or a rent-to-buy arrangement, or are planning to do so, please call our worker line for advice on 9602 3326.
What is a vendor terms contract?
A vendor terms contract is a way to buy a property, where the buyer pays the purchase price to the seller by instalments, rather than using a home loan to pay the full purchase price at settlement.
The contract of sale to buy the land should say whether the contract is a vendor terms contract.
Under a vendor terms contract, the title to the property stays in the seller’s name until the full purchase price is paid. The buyer usually lives in the property while they are paying off the purchase price. The buyer often pays the council rates and insurance under the vendor terms contract.
What is a rent-to-buy arrangement?
A rent to buy arrangement is where one or more contracts provide for:
- a right to purchase a property; and
- a person to rent the property for at least 6 months before the right to purchase can be exercised or the purchase completed.
Vendor terms contracts and rent-to-buy arrangements entered after 1 March 2020
From 1 March 2020, the following are banned:
- rent-to-buy arrangements (unless the seller is a government or community housing agency);1 or
- vendor terms contracts if the purchase price is less than $750 000.2
If you have a client who has entered one of these banned arrangements after 1 March 2020, they can cancel the contract before it is completed by giving written notice to the seller.
After cancelling the contract, your client will be entitled to a refund of the money they paid to the seller under the contract. However, your client will need to pay the fair market rent for the time that they lived in the property or were entitled to rent from the property.3 To work out what the fair market rent would be, you could check online to research how much similar properties have been rented for during the time your client lived in the property.
You can also make a complaint to Consumer Affairs Victoria as it is now an offence to advertise or induce a person to enter a banned vendor terms contract or rent-to-buy arrangement.4
Vendor terms contracts and rent-to-buy arrangements entered into before 1 March 2020
If your client is in a vendor terms or rent-to-buy contract that they entered into before 1 March 2020, you can apply to VCAT or a Court to end the contract, as long as:
- The rent to buy arrangement was not with a government or community housing agency
- The vendor terms contract was for a purchase price of less than $750,000.5
The Court or VCAT can make an order to end the contract if, at the time your client entered the contract, there was a reasonable prospect that your client would not be able to:
- make the payments required under the contract (for example, because they could not afford the payments); or
- get a loan needed to complete the purchase on reasonable terms; or
- your client no longer lives on the land purchased under the contract because they could not afford the payments required under the contract.
The Court or VCAT can also make orders:
- that your client does not have to do what is required by the contract; or
- that the seller must repay your client the money they paid under the contract however, your client will need to pay for fair market rent for any time they lived in the property or were entitled to rent from a tenant living on the property.
However, the Court or VCAT must not make these orders if it would result in undue financial hardship for the seller or is otherwise not fair to do so.6
1 Sale of land Act s 29WA, 29WC.
2 Sale of land Act s 29AB, 29EA, Sale of Land Regulations r 6.
3 Sale of land act s 29F, Sale of land act s 29WG
4 Sale of land Act s 29AB, 29EB 29EC Sale of Land Regulations r 6, Sale of land Act s 29WD, 29WE.
5 Sale of Land Act s 56, Sale of Land Act s 55
6 Sale of Land Act s 55