Can You Sell a Rental Property with Tenants on a Lease?

By: ROS Team July 19, 2021

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Buying and/or selling a real estate property can often be an overwhelming experience. Most people buy or sell a home once in their lifetime. So they may be less familiar with the legal aspects and technical nuances related to a real estate transaction. The process can become even more stressful if you are selling a rental property with tenants on a lease. In that scenario, you then have to know how to navigate a sale without violating the tenants’ renting rights.

Some renters have complained that ‘my landlord is selling my house during COVID’ because many people are struggling to maintain their lifestyle. You may have valid reasons for selling property with tenants in residence, but remember that the tenant has a tenancy agreement. So you should cover all aspects of the tenant’s rights before finalizing the property sales transaction.

Selling a Rental Property with Tenants

Your Options When Selling a Rental Property with Tenants

If you plan to sell a rental property but still have tenants leasing the property, you have two options:

1) Sell the Property with Current Tenants

In this arrangement, you can sell the property even with tenants currently on rental agreements with you. The new landlord can not evict tenants until their lease term ends, even if that’s not until after the sale is complete. The only change that tenants will notice is they will start paying rent to a new landlord.

2) Complete Sale after Possession

In this case, you will have to enter into some kind of agreement with your tenant to vacate the property before the sale to the new owner is complete. It largely depends on the tenants how they respond to your request to vacate the property. Do they amicably agree to leave or ask for some kind of compensation in exchange for being asked to move out?

Read Also: The Difference Between Rent and Lease

Can I Sell My Rental Property With Tenants In It?

Can I sell my rental property with tenants in it” is usually the first question that arises when the landlord contemplates selling their rental property? The simple answer is yes. After all, It’s your property, and you have exclusive right over how it’s managed. However, just because you can sell doesn’t mean you should, especially if you have tenants. Most states require that landlords allow tenants the option to stay in their rental until their lease term expires.

Before you list your property for sale, though, you should weigh the pros and cons of selling property with tenants in residence. Sometimes, allowing tenants to remain on the property before and after the sale may work out perfectly, but it may not always be the case.

Sell My Rental Property With Tenants

Consider the following factors before selling a rental property with tenants.

Lease Terms:

If you have tenants who have signed a month-to-month lease, you can simply end their lease by giving notice according to state law. If your property lies in a rent controlled area, consult with applicable laws to ensure that the new buyers can end the tenant rental agreement. Discuss with your real estate agent whether you should terminate the tenant’s lease or leave the decision to the new owner.

Potential Buyers:

Most of the time, real estate investors are eager to buy a property with an existing tenant who’s in a long-term lease agreement and is up-to-date on their rent. If the property is on a month-to-month or short term lease, it is likely to attract both real estate investors as well as buyers who want to live in the property but can’t move immediately because of their current lease terms. But having a tenant with a long-term lease will put off those buyers who were buying for their personal use.

Property Type:

If the property is in an apartment complex with multiple residential units, investment-oriented potential buyers will be interested in buying properties from owners who don’t have problems with the tenants.

The Market Price of the Property:

High-priced properties are usually purchased by people who plan on living in them someday. Most people don’t invest in property solely for a passive source of income. Very few buyers will be interested in taking on a new property with a high mortgage but a low rent rate.

Market Price of the Property

A Landlord Must Inform the Tenant

My landlord is selling my house during COVID’ has become a familiar complaint among tenants. Although it is the landlord’s prerogative whether or not to sell their property. They must also notify the tenant in writing that a sale is pending. Ideally, it’s best to notify tenants in person before the property is listed for sale since you might need to bring the potential buyer in to inspect the property. Notifying tenants beforehand removes the element of surprise and possibly mistrust from the equation. It will also give the tenant time to plan for what their next move will be once the property sells.

Note: Be sure to follow federal and state laws even if you have already decided to evict a tenant before selling your property. The eviction process can take several months to complete.

After-Sale Steps

Once the property is sold, it’s the outgoing landlord’s responsibility to inform their current tenants that the property was sold and provide the following: 

  • The new landlord’s name
  • The new landlord’s contact details
  • An address for service
  • Any updates related to how rent payments should be submitted

The landlord should also tell tenants the effective date on which ownership will officially change. The landlord should inform the new owner of the tenant and provide him or her with a copy of the rental agreement if selling a rental property with tenants on a lease.

Conclusion

Selling rental property with tenants on a lease is not like a conventional property sale. You have to keep the tenant and their lease agreement in mind. The property transfer could be simple if the tenant who lives on the property is on a month-to-month lease. However, the situation can get rather complicated if the property purchased has a tenant who is on a long-term lease. The fact that the tenant is in a long term lease might attract potential buyers who want to rent the property. But it may become a turn-off if they bought the property for personal use.