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Can I Legally Sell a Rental Property with Tenants?

October 09 2018
by Leisl Bailey

can i legally sell a rental property with tenants

As a landlord, there are very specific property laws that you need to follow. While you do own the property, you can’t treat it like your own home because the people who pay you to live there also have rights.

These rights usually include things like requiring warnings for visits, guaranteeing repairs, and advanced notice about intent to sell.

Many landlords have the same question, “Can I sell a rental property with tenants?”

And the short answer? Yes. But there are a few extra steps you have to take.

Can I Sell a Rental Property with Tenants?

Here is everything you need to know about the logistics behind this common question:

Common Reasons to Sell with Tenants

There are a few reasons why a landlord would be interested in selling his property while it still has tenants.

The first and most common? Cash! Many people see their tenant properties as investments. And sometimes it’s just the right moment to cash in.

There is also a flipside to this. If the market is down or occupancy across all your rentals is low, you might just want “out” of the responsibility of your rental properties. You can do this by selling.

Alternatively, you might have decided that being a landlord is not for you and would like to end the business venture. This also tends to happen when people inherit a rental property, as they have no interest in maintaining it.

The final most common reason to sell a rental property with tenants is a simple one: you are moving and do not wish to be a long-distance landlord.

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Common Types Rental Agreements

There are two types of rental agreements that most landlords use to manage tenancy in their rental properties.

Since you own the property, you can technically sell it whenever you want to. However, depending on the type of contract you have with your tenants, there are different kinds of steps you must take to maintain legality.

Month-to-Month Agreements

The first kind of contract that a tenant might sign is a month-to-month agreement. These types of leases are exactly what they sound like: a tenant only pays to live on your property from month-to-month without any promise of long-term accommodation.

One of the main benefits of this kind of lease is that it is quite simple to proceed with “no cause” terminations of contract. This means that even if your tenant is a good one, if you want to sell your property, you can still require them to find alternative accommodation.

If this is the kind of lease that you have, it’s easy to sell your home with tenants. All you are required to do by law is to give your tenants proper notice about your intent to sell.

Because their contract is month-to-month, this means mailing or delivering a letter that should arrive a minimum of 30 days before the day they must vacate the property. The day they should move out it typically the day the next month’s rent would be due.

However, like many laws, the required period of time varies from state to state. Be sure to double-check the notice period in your state here.

Fixed-Term Leases

The second most common type of lease is a fixed-term lease. As the name would imply, there is less flexibility involved in this type of lease.

There are a number of different ways to handle selling a property with a fixed-term lease.

Here are a few key suggestions:

Wait Until the Lease Expires

If the tenants in the property you would like to sell have not broken the terms of their lease, one of the best things you can do is simply wait for it to run out and choose not to renew it. Then, once the tenants have moved out, you can easily sell the property.

However, if they have violated the terms of their lease, you can accelerate the moving out process, as long as you still give them the required legal notice.

Here are a few lease violations that could warrant this action:

  • Failing to pay rent
  • Engaging in illegal activities on the property
  • Having pets if they are not allowed
  • Subleasing if prohibited
  • Causing serious property damage
  • Lying on the rental application

Sell the Property with an Active Lease

Something important to remember is that a fixed-term lease does not automatically terminate when a property is sold. So, if you want to sell your rental house while you still have tenants, you have to find a buyer that is okay with someone living in the home.

This means that you will usually be selling to investors who will take over your position as landlord. The new owner must honor the contract with the tenants and allow them to live there until it expires.

Because of this, it is best to consult with a lawyer to discuss the particulars of your situation if you choose to go this route.

Pay the Tenant to Vacate

While tenants in a fixed-term contract are under no obligation to move out early, sometimes you can make a deal with them that is mutually beneficial.

In the industry, this tactic is commonly known as “cash for keys.”

Here’s how it works:

If your rent is lower than similar properties in the area, offer to pay the difference in the tenants’ new rent for the remainder of their lease period. You can also offer to help with moving costs, as moving earlier than expected is a really nuisance.

Sometimes landlords will offer to pay the security deposit (or at least half) on their tenants’ new home. It all depends on how much you are willing to spend – and how badly you want your tenants to move out.

Selling to the Tenant

Instead of paying your tenant to move, you can also offer to sell the property to them.

Your tenant could then obtain a traditional mortgage, or purchase the property from you with seller financing, which is essentially when you start applying their rent payments towards equity in the home. However, you typically need to own your home outright to use this option.

Early Termination Clause

An Early Termination Clause is an “easy out” when you want to sell a property with tenants; however, it needs to be included in the original lease.

The trigger for termination can be a variety of things. Both parties just need to agree to it in the original lease.

Looking to sell your rental property? List with Clever! Our quality agents will take the headache out of it for you – all for one flat fee. Call us today at 1-833-2-CLEVER or fill out our online form to get started.

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