If you own your own home, you might have heard of the so-called “novated lease.” But what does it mean, and how can a novated lease benefit you? This article provides a short explanation of novated leases and explains what they’re used for. By reading this, you will have an idea if a novated lease is suitable for your situation.
A lease that has an expiry date is called a “vested” lease. Here is a general explanation of other kinds of leases: If you sign a lease to buy property, you are locked into it unless you pay a certain amount of money to the property owner. If that amount of money is not paid, the property owner can then sell the property to recover his investment. This way, he’s assured of having his investment even if others don’t. A vested lease gives the property owner a guarantee that he will get his money back.
But a vested lease can be a problem. Usually, the property owner pays the lease in one lump sum, and then he gets two or three years without any additional payments from new owners. After that, new owners can start paying the monthly obligations immediately. The problem is that for the lease to work, the property must be free of any restrictions. For instance, if there are conditions such as a no-sales clause, no-code-enforcement clause or a deed restriction, these conditions must be disregarded when the new owners purchase the property.
So, how does a novated lease help? The answer is simple: if a new owner purchases the house after the lease has expired, he’s locked into a contract with the previous owner. As a result, the new owner can do whatever he wants with the property, including selling it if things turn sour. Also, the novated lease prevents the former owner from applying any additional fees or charges against the new owner. He can use the money from the sale to fulfil his expenses at the end of the lease period.
You must take the time to understand your options with a novated lease before going through the process with a real estate agent. You will want to ask about all the pros and cons and make sure the deal you’re getting is best for you and your needs. A novated lease can be very advantageous if you make the right decision while you negotiate the contract.
If you find in need of renting a house for an extended time, such as a year or more, you may want to consider a novated option. A novated lease allows you to become the tenant for some time without any commitment to the property. You can determine whether a novated contract is suitable for you by speaking to a real estate professional. Even if you aren’t ready to move into a house right away, you can still benefit from this type of lease. If you need to move out of the property in the future, you can find a new property that will work with your budget.
