As minimum rental standards move from rollout to routine practice in Victoria, there is a flow-on effect for rent roll sales.
At BDH Solutions, we are noticing a red flag showing up in a number of transactions, where a non-compliant property is handed to a new rent roll manager as part of an exchange. This results in disputes during the retention period because the buyer can technically claim the property is worth nothing.
A single non-compliant property can trigger a dispute over value and responsibilities, and this costs everybody. Find out how to avoid the issue.
Rental property non-compliance and the problems it causes in a rent roll exchange
Victorian rules treat a non-compliant rental property as having no income value until rectified. As explained by Consumer Affairs Victoria, non-compliance might relate to factors such as smoke alarms, electrical safety, heating standards or locks. It can occur because a property owner has been reluctant to make upgrades, or the property manager has failed to take note of recent changes to legislation.
For a rent roll buyer, this creates uncertainty around cash flow and adds workload, since urgent checks, trades, and communication with renters are required to bring the dwelling up to a lease-ready standard.
For a seller, exchanging a rent roll with one or more non-compliant properties can mean a price reduction or removal of the property from the roll count used in the final adjustment.
The fine for non-compliance can extend to $59,000 and a listing on a non-compliance register for property managers and $11,000 for individuals. This is a hefty penalty and explains why compliance is such an important matter in a rent roll exchange.
The importance of due diligence ahead of a rent roll exchange
Due diligence should include lease reviews, certificates, maintenance logs and owner declarations, and responsibility falls to the seller and their property managers to confirm the necessary checklist is taken care of.
However, there are times when even best efforts result in issues being overlooked. A property manager may rely on verbal assurances, or records may be inaccurate. Because of this possibility, it’s best for both parties to plan ahead and agree on what to do if a non-compliant issue becomes evident during a transition period.
What to do about non-compliant properties during the retention period
If a non-compliant property is uncovered in retention, the stakeholders have two options.
1. Remove the property from the sale
A property with zero current income value can be excluded from the transaction. In practice, the buyer drops it from the rent roll count, the retention is adjusted, and the management agreement is ended or returned.
2. Keep the property under an agreed compliance plan
If both parties agree, the buyer may retain the property and follow a written plan to complete required works. Once standards are met, the property resumes at normal value within the portfolio. However, compensation will be required for the costs involved with ensuring the home complies with minimum rental standards.
Both options are workable, but problems arise when parties disagree about what to do and there is no clause in the contract.
When a non-compliant property becomes evident, the buyer may prefer removal to avoid risk and admin load, but the seller may push to keep the property in count, arguing compliance is close or the changes required are minor.
Without a pre-agreed rule, retention becomes a tug-of-war and can spill into legal action, which will have one guaranteed result: everyone spends money.
In this situation, prevention is the cure. Both parties should take the time to add a clause in the MoU or contract of sale confirming the course of action if non-compliance is found in retention.
The clause can say
the property is removed, with price and retention adjusted, or
the property stays if the owner signs a compliance plan within a set period, with costs allocated clearly.
Either route works. What matters is certainty before exchange. If both parties agree on the response to a non-compliant property, it won’t be a major issue.
A small clause now can save a major headache later. Let BDH Solutions work with you to prepare a pre-sale agreement covering every element so your exchange is trouble-free.
Non-Compliant Rent Roll Property FAQs
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A property is non-compliant if it doesn’t meet any of the minimum standards which apply before a home is advertised or leased. These cover safety, security and basic amenity items such as working smoke alarms, electrical safety switches and compliant switchboards, secure locks on doors and windows, and safe, energy-efficient heating in the main living area. Since 1 July 2025, Victoria has also introduced additional energy-efficiency requirements (like insulation and draughtproofing), so compliance checks now need to include those upgrades too.
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In practice, the seller carries the burden of confirming all managed properties are compliant at exchange, because the buyer is purchasing an income stream from lease-ready homes. This is why due diligence should include up-to-date certificates, maintenance logs and a completed minimum standards checklist for every property. Buyers should still verify high-risk items during due diligence, but solid reviews and documentation from the seller is what minimises retention disputes later.
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If non-compliance shows up during retention, the safest path is to follow what the contract already says. Most transactions handle this one of two ways:
Remove the property from the sale, with the roll count, retention and price adjusted.
Keep the property under a written compliance plan, with clear timeframes and cost allocation so the buyer isn’t left funding urgent works for a non-compliant and unleasable property.
The approach should be agreed on upfront in the MoU or contract to avoid disputes during the retention period.Description text goes here