Selling a Tenant-Occupied Property: The Way Selling Property with Tenants Should Be Done

January 19th, 2022  / Author: Cesar Gomez
Home Sales

The US real estate market is hot right now, so it would come as no surprise if you wish to benefit from a seller’s market. Or maybe being a landlord has simply become too much work. The solution seems simple – sell your property while the demand is high. But there is a hurdle you need to overcome – you have tenants. So, is selling a tenant-occupied property possible?

And if it is, what special considerations does selling a rental property with tenants necessitate? You have your rights, but what rights do tenants have? In this article, we will answer all of these questions, explain how selling a tenant-occupied property should be done, and exemplify it by describing how it can be done in California.

Can You Sell a Tenant-Occupied Property?

The first question that often comes to mind is – can you sell a house with a tenant in it? And the answer is simple – yes, selling a tenant-occupied property is within your rights. But the process is not as simple as if your property were unoccupied, both from a practical and legal standpoint.

The First Step in Selling a Tenant-Occupied Rental

So, you’ve grown tired of being a landlord and know that you can sell a tenant-occupied rental property. Now it’s time to learn what the best way to do it is. There are several factors you need to consider, on top of the specific laws applicable in your location; while the general principle is similar in all states, cities may have additional laws that regulate the sale of an occupied property.

The most important factor you should determine is what kind of lease you have. This will determine the rest of the selling process. If your tenant has a month-to-month lease, the process is rather straightforward. On the other hand, a tenant with a fixed-term lease complicates things. Let’s dive deeper.

A Tenant with a Month-to-Month Lease

In most states and cities, you can terminate a month-to-month lease without a specific cause or provide an explanation. You need to provide a notice in advance (usually between 30 to 60 days, as stipulated by the terms of the lease) that the lease is ending and you can sell your property as you see fit.

A Tenant with a Fixed-Term Lease

Selling a tenant-occupied property if the tenant has a fixed-term lease is more complicated. Assuming they are paying their rent on time and honoring the terms of the lease, they have a right to live in the property until the lease is over. This can be circumvented if the lease contains an early termination clause, but that is on a case-by-case basis.

Similarly, you can evict your tenant if they are not honoring the terms of the lease. However, you must have just cause for eviction, so you can’t simply change the terms of the lease arbitrarily in the hope the tenant will break them and you have cause for eviction. Most states have some form of rent control laws that severely limit what you can do to the terms of the lease.

In any case, starting the eviction process because you want to sell is often the worst move you can make for several practical reasons that we’ll get to later on. Another option is to wait until the lease is over and put the house on the market then. If this is not a practical solution, your final option is to sell your property while your tenant still occupies it.

Yes, they have a right to live in the house until the lease is over, but you also have a right to sell your house, even if they will keep living in it.

Putting Your Property on the Market while a Tenant Still Occupies It

You are within your rights to sell an occupied property, but selling in this manner entails a few additional practical considerations you should be mindful of. First, how will your tenant respond to the sale? Second, what kind of buyer pool is available to you?

Selling a Tenant-Occupied Property

Communicate with Your Tenant

It is of paramount importance that you clearly communicate with your tenant. You will need to hold showings and your tenant needs to be notified well in advance. In case you and your tenant don’t have the best relationship, they could jeopardize the sale.

If necessary, give them some incentive to keep the home tidy and vacate once potential buyers come to inspect the house. Maybe knock off one month’s rent or agree to return the deposit? Showings are an integral part of real estate and your tenant’s willing cooperation could be the factor that makes or breaks a deal.

Who Should You Sell To?

When you are selling a single-family rental with a tenant still living in it, especially if their lease still has a long time until it expires, your buyer pool is limited. Most private buyers that are looking for a home to live in will not be interested in buying a tenant-occupied property. Consequently, make it clear on all adverts and listings that it is an occupied property.

On the other hand, there are real estate investors that consider an occupied property a benefit, or at least not a disadvantage. While they are usually interested in larger complexes with multiple renters, they are possibly also interested in single-family rentals. Particularly so if the property is located in an area where rental properties are in high demand.

You could also consider selling to the tenants themselves. If they are already living in the property and consider it their home, they may wish to own it, too. The stars may need to align for them to be able to finance the purchase, but this is definitely one avenue you should explore.

The Short of It

You can sell a tenant-occupied property, but the tenant may continue living in it until the end of their lease. One of the worst options is to evict your tenant without just cause and face a wrongful eviction lawsuit.

Search for buyers that are willing to buy occupied properties or wait for your tenants to move out on their own. If your only option to sell is without a tenant, you may incentivize your existing tenant to leave – paying them a month’s rent plus the security deposit (this is sometimes called a ‘cash for keys’ agreement) and helping them find a new place to live is often enough.

The Case of California

Selling a tenant-occupied property in California is within your rights, but you have to give your tenant an advanced notice in writing that you will be showing the property to potential buyers. Pursuant to California Civil Code 1954, the notice must be given in writing, at least 120 days in advance.

In case you have a tenant with a month-to-month lease, pursuant to California Civil Code 1946.1, you must provide them with:

  • 30 days to vacate if they have been living in the home for less than a year
  • 60 days to vacate if they have been living in the home for more than a year

Fixed-term tenants can continue living in the home until the lease is over, even after you sell it. They continue to pay rent to the new owners under the terms of their lease and may negotiate to move out or continue renting after the original lease ends.

Don’t Have Time to Wait for Your Tenant to Move Out?

Then contact SleeveUp Homes. We are local Southern California investors that will buy your property as-is for top dollar. You can negotiate all terms of sale and we will work out a deal that benefits us both. Request a no-obligation cash offer and compare it to other offers you’ve received. We guarantee we’ll do better.

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YOUR HOUSE

If you want to sell fast and are worried about how long the traditional process takes, and the commission and fees involved, consider working with SleeveUp Homes.

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