Selling a Tenant-Occupied Home: What to Know When You’re Selling a House With Tenants

Selling a Tenant-Occupied Home: What to Know When You’re Selling a House With Tenants

Florida landlords need to address a number of legal and practical issues when they are selling a house with tenants still living in it. The legal considerations are generally the same whether the property is a single-family home, a condominium, or another type of dwelling. Depending on the property, there may be additional contractual requirements to resolve, such as dealing with a homeowner’s association.

Landlords also need to understand Florida tenant rights laws and any local laws that control the sale of real estate. One of the first things to consider is that the tenant may want to buy the property. As a practical matter, it may be advantageous to give the tenant the first option to buy the property since they are already living there. The tenant may even have a legal first right to buy the property as part of their lease.

What are the Tenant's Rights When the Landlord Sells the Property?

Generally, the landlord owns the home and can sell the property any time they want. From the tenant's perspective, they have the right to live in the property, even if there is a new owner, for as long as the lease is still in effect.

For example, the lease may allow the tenant to stay in the property for one year, from June to June. The homeowner can legally sell the property, for example, in February, but the tenant will have the right to stay in the home through June. The new property owner must accept the property under the terms of the existing lease with the tenant. When the lease ends, the new owner will then have the right to either extend, terminate, or modify the existing lease.

Lease agreements may contain unique terms that control the sale of the property covered by the contract. Or, you may be in a situation where there is no lease in place. Before you place a rental property on the market, consult with a qualified real estate lawyer to understand your legal rights and obligations.

To Sell a House With Tenants in Place, Consider a Potential Buyer's Needs

A major concern when selling a house with tenants is how potential buyers will consider the tenant arrangement. A lot will depend on whether the buyer is buying the home for an investment for rental income or if they want to buy the home to live in it.

If the new owner wants to live in the home, most likely, they will not want another tenant in the home. These potential buyers must consider how long the tenant has the right to stay in the property and what it will take to remove the tenant if they do not leave voluntarily at the end of their lease.

If the property is meant to be used as a rental income property, the buyer will see the tenant as a source of income starting as soon as the sale closes and the buyer becomes the new owner. However, not all investors may want to rent the home.

Other potential buyers may want to take possession, make necessary repairs, and then resell the home. This is known as flipping a property. A new buyer cannot begin making repairs or renovations while a tenant is still residing in the home. In this situation, selling a tenant-occupied home could be tricky.

Negotiating Tenant's Rights When the Landlord Sells the Property

When selling or buying a tenant-occupied home, the seller and buyer need to consider several potentially complicating factors. For example, is the tenant paying the rent on time? If the rent is past due, a potential buyer may shy away from a purchase, knowing the tenant may be difficult to deal with and unlikely to abide by the terms of the lease agreement.

Another concern is whether the current rental amount is fair, considering the market value of the property. If the rent is below market value or the tenant is a difficult tenant, both the buyer and seller may prefer that the tenant move. Evicting a tenant is complicated if the tenant does not want to leave. Landlords often seek the assistance of an experienced real estate attorney to help remove a tenant who has breached the terms of their lease agreement.

Consider Tenant Negotiations

Before starting the eviction process, the owner may try to negotiate with the tenant and ask the tenant to leave before the property is placed on the market. For example, a common strategy is to offer the tenant a payment in exchange for the tenant agreeing to end the lease ahead of the contract termination date.

Ideally, the tenant leaves before the seller lists the property. Alternatively, if the timing is a little off, the seller may try to reach a deal with the tenant so the owner can say that the property will be tenant-free when the property closes. The agreement with the tenant should be in writing to ensure it is enforceable and to show potential buyers that the early termination agreement is valid.

It’s normally better if the tenant vacates the premises before the property is listed for several reasons. First, there’s the risk that a tenant may agree to leave early but then decide to stay beyond the agreed date. Also, when a potential buyer views the property, they will see it is vacant and won't be concerned about removing a tenant when they take possession. Again, any agreement that modifies the original lease should be in writing and signed by the owner and the tenant.

Other Alternatives to Consider When You Sell a House With Tenants

Since many home rental leases are year-to-year, the seller could just provide the proper termination notice as the lease comes to an end and then list the property when the tenant moves out. This alternative only works if the owner has the ability to wait until the end of the current lease to sell the home.

In another possible scenario, a buyer may agree to buy the property with a condition in the sale agreement that the tenant must leave the property when the lease expires. In this situation, the buyer is taking responsibility to evict the tenant if they don't leave when they are supposed to go.

Sellers Should Negotiate These Terms When a Tenant Stays in Possession During a Sale

If the tenant is going to stay in the property after the closing, there are many practical considerations the seller should negotiate and review with the tenant. With these agreements in place, the seller can enhance the sales price and the attractiveness of the property.

Sellers should require the tenant to follow these requirements:

  • The tenant must make and keep the property as clean and attractive as possible. First impressions count a lot when buyers consider purchasing a home.
  • The tenant must work with the real estate broker to arrange times to view the property that is convenient for the tenant. Tenants should be given advance notice instead of having the broker just knock on the door. The best times of day or night for showing the property should be chosen in advance, if possible. If an agreement with the tenant can’t be reached, the lease agreement should generally dictate how much advance notice is necessary for the landlord to enter the property.

Homeowners considering selling a house with tenants residing on the premises should review the legal notice requirements with an experienced Florida real estate lawyer. In addition to time notices, there are formality notices. Generally, notices may require certified or registered mail or hand delivery, not just putting a sticky note on the door.

How to Improve the Process of Selling a Home With Tenants

Sellers normally prefer that the tenant leave the home at the time the listing agent or broker shows the property. The freer the buyer is to make their own inspection and decision, the better.

A seller may consider paying for the tenants to eat at a local restaurant while the property is being shown. The seller might even drive the tenant to the restaurant or arrange for transportation through a rideshare or cab service. Sellers might also consider hiring a cleaning service if the tenant is not a tidy and neat type of person.

Finally, a motivated seller might help the tenant find a new place to live if the new buyer does not want to continue the current lease. In addition to financial incentives, the seller might consider helping the tenant find an apartment or another home for rent. Or, if the tenant has the financial ability, the seller might help the tenant buy a property of their own.

Any major incentives, such as a cash reward for leaving the property before the end of the lease period, should be put in writing and signed by the homeowner and the tenant(s). As a seller, you don't want any dispute over the terms of additional agreements. Often, just the act of putting the terms into a written contract helps tenants honor the terms of any agreement.

Next, while some listing agents use a key safe to gain access. If there is a tenant in the home, the seller and broker should discuss the proper method of entry with the tenant so everyone is comfortable about security and who will be allowed to access the property.

Last, it's important to understand the tenant’s needs after the sale takes place. When a homeowner is selling a house with tenants, they should talk with the tenant and the buyer to discuss what will happen after the original lease term expires.

Important issues may include:

  • Will the buyer be able to live in the property after the sale?
  • How long can the tenant stay in the home under a new lease agreement?
  • What rental price will the buyer demand?
  • What other terms will be included in a new lease?

Work With a Skilled Real Estate Lawyer to Avoid Problems When Selling a House With Tenants in Possession

Assuming the homeowner is on good terms with their tenant, there are many steps they can take to improve their experience when selling property with tenants in possession. Keep in mind tenants have rights when a landlord sells the property. The most important way to create a smooth transition is to maintain open communication.

When you are selling a house with tenants and a rental lease, it's best to speak with a dedicated real estate lawyer to help you follow the correct legal procedures and protect your rights as a homeowner. Be sure to put all new agreements into writing and follow state and local laws to ensure a smooth sale process.

For more information about the legal implications of selling your tenant-occupied home, reach out to our team today.