Owning a rental property is one of the best ways to have financial security. You have the liberty to sell at any time to sort out any urgent financial matter. But for a rental property with occupants inside, things could be a little different.
If you have a rental property with tenants inside, selling might not be as simple as it seems. Tenants have protection rights that every landlord needs to know before listing the property for sale. The rights protect them from the frustrations of moving to a new place or having to deal with new management.
The rights can also affect your schedule for house viewing and any plans for taking photos for viewing purposes. Things can be even harder if you have a strained relationship with your tenants, as they might not be so cooperative.
This guide elaborates on the tenant's rights you need to observe before selling your property to avoid confrontations or misunderstandings.
Tenant's Rights When Landlord Sells the Property
1. Right to Get a Notice to Vacate in Time
The first tenant right you need to observe when selling your property if the lease term is expired is notifying them to vacate. Most states dictate that a tenant should be given a 30-60 days' notice to enable them to plan and leave on time. So, check on your local laws on notice to terminate your rental agreement to avoid legal actions against you.
2. Advance Notice on Property Showing
You must notify your tenants when you’ll bring the new property owner for house viewing on time. This should be a 24-48 hours' notice to enable the tenant to plan for the visit.
You can agree with the tenant on the time if you’re on good terms to avoid inconveniencing them or violating their privacy. Giving your tenants prior notice when planning for a house appraisal or inspection is also advisable.
3. Right to Receive Lease Termination Payout
You also need to know that your tenants have a right to receive a lease termination payout (“cash for keys”). You should offer the tenant the payout if they decide to vacate your property before the end of the lease.
Give them enough money to cover the remaining time on the lease to facilitate their movement from your property. This works best if the lease doesn’t have an early termination clause.
4. Right to Negotiate for a Relocation Fee
Your tenants also have a right to get a relocation fee when your property is up for sale. Such rights are applicable in certain circumstances, like for low-income citizens. For example, the landlord should pay a low-income tenant half the relocation fee in Seattle to facilitate the process.
However, a landlord must pay all the relocation fees in some cities, like Poland, without government assistance. But if your state doesn't have such laws, you can agree with your tenant if you want them to vacate before the lease ends. In such a case, you pay their relocation fee to allow you to sell the property without challenges.
Related Reading: Can a Landlord Be Sued for Emotional Distress?
5. Right to Dishonor the Lease
A good landlord should pay attention to matters affecting a tenant or their duties. This is because a tenant can break the lease agreement if they feel their rights have been neglected when you are selling the property.
If you neglect the lease agreement, your tenant can break it to allow them to stay in your property as long as they wish. Such a tenant can dishonor the lease without facing any consequences.
6. Right to Occupy the House After Sale
Your tenant also has the right to stay in your property after sales. Such happens if you disagree on “cash for keys” and their lease agreement is still active.
The tenant can stay in the rental property until the lease expires. Remember, a renter's rights during a sale are more paramount than property rights. The new landlord has to wait for the lease to end before taking any action on the property.
7. Right to Receive Security Deposit
It's usual for tenants to pay a security deposit during lease signing, and it's refundable if they’re vacating the house. Landlords have to refund this amount to the tenant when the lease ends.
If you allow the tenant to stay in the property despite the new ownership, let them know and arrange refunds. After the lease ends, the tenant should receive the security deposit minus any deductions without conflict. Please check with your local law what the acceptable deductions are.
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8. Right to Enjoy Original Lease Terms
If you sell your property, your tenant still has the right to live in the house under the original lease terms. The tenant should receive waivers or complimentary amenities as in the actual lease terms even after a new landlord takes over. This should happen until the lease term ends.
9. Right to Sue the Landlord in a Small Claims Court
Since telling your tenant to vacate your property can disorient and frustrate them, they have a right to vent in a small claims court. The tenant can sue you for not giving them ample time to vacate the property or for ending the lease prematurely.
The tenant can also sue the landlord after necessary services like security are withdrawn. The small claims court might force you to pay back the security deposit. Remember, such a move by the tenant can discourage buyers from transacting with you.
10. Right to a Well-Maintained Property
If you are selling your property, it doesn’t deprive your tenants of the right to stay in a clean environment. It's up to you to ensure the utilities are in perfect shape and the compound is clean. Additionally, you need regular repairs as you plan to change the property's ownership.
If the property is not in perfect condition, a tenant can break the lease or withhold part of the rent. Alternatively, the tenant can file a case in a housing court.
11. Right of First Refusal to Buy the Property
A tenant has the first right to buy your property when it's for sale. This is applicable in certain states, like Washington DC, where a landlord has to send a letter of intent to sell. It should contain all the essential information regarding the property.
Tenants have about 30 days to decide whether they will buy the property. But if the property hits the market, the tenant can still purchase it under the right of first refusal laws.
12. Right to Occupy the House During House Showing
A tenant also has the right to be in their house during the showing if their lease is still active. But they are not required to clean the property before viewing to please the buyer. Instead, the landlord can arrange with the tenant on the best time to view the house and how to clean it.
The landlord can sponsor a coffee date or pay for house cleaning services to avoid misunderstandings.
13. Right to Vacate the House Regardless of the State of the Property
If a tenant's time to vacate your property has come, they can do so without tidying up the space before the buyer comes. Doing this reduces the chances of misunderstandings between landlords and tenants. But you can agree with the tenant to help out. Give them the incentive to motivate them to leave the property in good shape so it can attract a buyer.
Related Reading: Can a Landlord Move Your Belongings Without Permissions?
Tips for Landlords and Tenants Throughout The Process
- Clear Communication: It's vital for landlords to maintain open and honest communication with tenants throughout the selling process. This includes updates on the sale progress and any changes that might affect the tenant.
- Compliance with Fair Housing Laws: When showing the property, landlords must ensure that they and potential buyers comply with fair housing laws, avoiding any discriminatory behavior or comments.
- Handling of Personal Information: Landlords should be cautious about sharing any personal information of the tenant with potential buyers. Privacy laws should be respected in all interactions.
- Assistance in Finding New Housing: While not legally required, offering assistance to the tenant in finding new housing can be a good practice, especially if the sale requires them to move out earlier than expected.
- Property Maintenance: Until the sale is finalized and the lease is terminated, the landlord is responsible for maintaining the property in a habitable condition, addressing any necessary repairs or maintenance issues promptly.
- Respect for Tenant’s Schedule: When scheduling property showings or inspections, landlords should consider the tenant’s schedule and provide flexibility whenever possible.
- Documentation: All agreements made between the landlord and tenant during the sale process, especially those involving financial compensation or lease modifications, should be documented in writing to avoid future disputes.
What Affects the Tenant’s Rights When a Landlord is Selling Property
Before selling your property, you must understand that some factors determine the tenant's rights. The main factor determining this is the lease agreement between the two parties. Let's discuss each below:
How Fixed-Term Leases Affect Tenant's Rights
A fixed lease term is where a tenant pays rent for 12-18 months upfront. Under such an agreement, a tenant has the right to stay in your property until the lease ends, whether you sell it or not. However, there are instances where you can agree amicably to terminate the contract.
Rights of Tenants with Month-to-Month Lease Agreement
A tenant with a month-to-month lease agreement has different rights from one with a fixed contract. The tenant or landlord can terminate the contract at will without serious complications.
However, they have to give a 30 days notice to vacate the property to prevent alterations. Selling a property under such a lease is simple, provided both parties stick to the lease agreement.
Tenants with a Verbal Agreement
A verbal agreement with the tenant can be tricky to execute as they can do the unexpected. In most cases, both parties use each other’s words against each other. Despite that, some people still agree to the verbal agreement and use different methods to settle a score.
In some states, like California, a verbal lease agreement is viable only if it lasts for less than a year. But in Washington, such an agreement is considered a month-to-month lease. So, you have to check with your state laws to avoid being on the wrong side of the law.
Bottom Line
As a landlord, you can sell your property at will and realize your financial plans. However, you should still respect the tenant's rights and encourage their efforts to live peacefully. You must observe your tenant's rights, like the right to give advanced notice to vacate or show the property to the buyer.
The tenant also has the right to the original lease, occupy the property after the sale, and break the lease terms where necessary. Your tenant also has the right to “keys of cash” and small claims courts if you violate any of their rights. But all these depend on the lease term agreements and your relationship with the tenant.
You can insure your property with Steadily for legal claims after your tenants vacate your house.
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