Selling a House with Tenants: How It Should Be Done

Can You Sell a Tenant-Occupied Property?

Selling a house with tenants - is it possible? 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. There are landlord-tenant laws that limit your selling process. However, there is a way to do it right.

The First Step in Selling a Tenant-Occupied Rental

So, you've grown tired of being a landlord and know you can sell a tenant-occupied rental property? Now it's time to learn the best way to do it. You need to consider several factors on top of the specific laws applicable to 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 terms 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 Leasec

A property with tenants living in it on a month-to-month lease is much easier to sell, but you still have obligations, and the renters have their rights. They deserve to have proper notice about the sale.

In most states and cities, you can terminate a month-to-month lease without a specific cause or provide explanation. You need to provide an advance notice (usually between 30 to 60 days, as stipulated by the lease terms) 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 lease terms, 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 lease terms. However, you must have justified 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 your rental house 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 keep living in it after the sale process.

Putting Your Property on the Market while a Tenant Still Occupies

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?

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. If 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?

Your buyer pool is limited 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. 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.

Your target buyer will probably be some type of real estate investor. Some real estate investors 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.

Lease-to-Own Agreement

Lease-to-own or rent-to-own agreements offer an opportunity for your tenants to buy the property when the lease is up. Usually, these contracts put the obligations of repairs and general maintenance on the tenant, while the landlord just collects the monthly payment.

The contract can either require the purchase, or it can provide an option. Meaning if you and your tenants sign a lease-to-own agreement with a lease-option clause - your tenant can decide if they want to buy the property. Lease purchase is not an option, once you sign it, your tenants are required to purchase the rental when the lease is up.

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, according 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?

SleeveUp Homes. We are local Southern California investors that will buy your property as-is for top dollar. You can negotiate all terms of the sale, and we will work out a deal that benefits us both. We don't care about the property damage, or if it is a vacant or a tenant-occupied property - we will go out of our way and help you sell your property.

Request a no-obligation cash offer and compare it to other offers you've received. We guarantee we'll do better.

Author:

Cesar Gomez , Broker /

Cesar has worked as a real estate agent and broker in the southern California region since 2013.

  view all blogs by this author