Can You Sell a Property Occupied by a Tenant?

Things don’t always go as planned when you own a rental property. You may get a good offer for the home and want to sell it while there is still a tenant in the property. Does the law let you do this, and what are the implications of selling a property occupied by a tenant?

The short answer is YES: you can sell a rental property with a tenant in it, but the process is not as straightforward as selling a vacant property. Before selling your property, you must consider your tenant’s rights and understand the legal ramifications of the decision.

Even though the property belongs to you and you have the right to sell it, you also have a binding contract with your tenant. To sell the house without breaking the law, you must factor in your tenant’s rights regarding the lease and the sale of your home.

You may also face difficulties with buyers. Most buyers prefer to avoid the difficulties of buying a tenant-occupied home, but if your price is good some will work around the problems. For some buyers, however, having a sitting tenant in your property is a deal-breaker.

MTD Property Management has put together this guide with everything you need to know and do when selling a home with a tenant in it.

How a Sitting Tenant Affects Your Property’s Value 

Selling a rental property with sitting tenants can affect its market value. Demand for these types of homes is significantly lower than for vacant homes. Depending on the property, the fact that it is tenant-occupied can depress its value by as much as 25%. It may be up to 30%-40% if you have a long-term tenancy agreement in place.

But this also depends on the type of buyer you're talking to. With buyers who are owner-occupiers, you will face all of the above problems. But if you're selling to a property investor, having tenants in your property may actually turn out to be an advantage. Investors view having responsible tenants in a property as a bonus.

Ultimately, a lot depends on the location, renter demand in the area, and whether there is a pool of eager property investors looking to snap up available rental properties regardless of whether it has a sitting tenant or not. The property’s value also depends on how much rent your tenant pays. Is it below, at par with, or above the market rate?



Putting Your Tenant-Occupied Home on the Market

To avoid issues with tenants and local authorities, it is vital to adhere strictly to the terms of your lease agreement when selling a tenant-occupied home. You must be ready to work with your tenant(s) to reach a solution that works for all parties. Here are some steps that will make the process of selling your home easier:

Know What the Law Says

In most jurisdictions, selling your property will not terminate the lease agreement. On the other hand, you cannot simply terminate the lease and evict the tenants just because you want to sell the property. 

Check Your Lease Agreement

If your tenant has a month-to-month lease, it is easier to terminate the lease. Conversely, a fixed-term lease automatically transfers to the new owner. If there’s a "lease termination on sale" clause in the contract, it's an advantage.

Send Tenants a Formal Notice

A standard letter to notify tenants of sale will do. To accelerate the sale, offer your tenant the chance to buy the property before listing it. This step helps to secure the tenant’s cooperation during the sales process if they are unable to purchase the property themselves. To minimize conflicts, explain to your tenants how the sales process will affect them



Coordinate Showings With Tenants

When planning to show a tenant-occupied home to potential buyers, take into account the tenant’s right to quiet enjoyment of their home. Most cities expect you to give tenants 24-48 hours' advance notice before entering their home.

Even with advance notices, excessive showings may be viewed as harassment. To incentivize the tenant, you may offer a deal. For example,  a small rent reduction, a gift card to a local restaurant during open house, or free professional house cleaning.

Negotiate a Voluntary Move-Out

A move-out agreement or "cash for keys" deal can help you avoid the difficulties of selling a tenant-occupied home. Negotiating this kind of arrangement requires empathy on your part as well as cash compensation and other incentives. On the other hand, when selling your tenant-occupied home, if your tenant is uncooperative, you can work with an experienced attorney to evict them.

Help Your Tenants Find a New Place

Helping your tenants find a new home is an option you should be willing to explore. Working with the tenant and your real estate agent, you can find suitable openings in the area.

You can also give your tenant the contact details of landlords who may have a vacant rental property that they can move into.



The Best Strategy for Selling a Tenant-Occupied Home 

The best approach when selling a tenant-occupied home is to target property investors. Most landlords view a tenant-occupied property as a bonus because they can start earning income from it instantly. Consider the following when pursuing this strategy:

The Type of Property

Buyers who are property investors will not lose interest in your tenant-occupied property if it has several dwelling units, with most of them occupied. These types of properties are in high demand by property investors.

The Lease Terms

Long-term tenants who are paying the current rental rate for the area or higher are a huge plus for property investors. On the other hand, if the rent is below the going rate and there is much time left in the lease, you would be better off terminating the agreement before selling your home.

Rental Rates Must Be Up-to-Date

If your tenants are behind on rent, it is a major red flag. Potential buyers who are property investors don't want to inherit those kinds of tenants. Before listing your home, take immediate steps to make your tenant pay up, or forgive the owed rent in return for the tenant moving out.

Bottom Line

To summarize, you can absolutely sell your property if it is occupied by a tenant. However, you must be careful about not encroaching on the rights of your tenants. It is crucial to remain informed of all local, state, and federal laws when selling a tenant-occupied home. 

To prevent avoidable trouble when selling, it is always a good idea to work with experienced professionals. Contact MTD Property Management today to learn more.