Landlords need to consider a number of legal and practical issues when they sell a property that has a tenant-occupied person in it. The considerations are generally the same whether the property is a single-home, a condominium, or some other dwelling. There may be additional contractual requirements with a homeowner’s association. Landlords also need to understand Florida tenant rights laws and any local laws.
One immediate consideration is that the tenant may want to buy the property. As a practical matter, it may be wise to give the tenant the first option to buy the property. The tenant may even have the right to buy the property as part of his/her lease.
The right of the landlord to sell a tenant-occupied property
Generally, the landlord owns the home and can sell the property any time he/she wants to. The counter right is that that the tenant will have the right to live in the property if there is a new owner – for as long as the lease is active. For example, if a lease allows the tenant to stay in the property from June to June, the homeowner can sell the property in February. The tenant will have the right to stay in the home through June. The new owner will then have the right to either extend, terminate, or modify the existing lease.
Living in the home versus home investments
A major concern for sellers of tenant-occupied homes is how potential buyers will feel. A lot will depend on whether the buyer is buying the home for investment or is buying the home to live in it. If the home is meant to be lived in by the new owner, then they will not want another tenant in the home. If the property is an investment, then the buyer may see the tenant as a source of income. Some investors want to rent it. Others want to make necessary repairs and then sell resell it.
Negotiating with the tenant
One consideration both the seller and buyer need to consider is whether the tenant is paying the rent on time. Another is whether the rent is the fair market value for the property. If the rent is below value or the tenant is a difficult tenant, then both the buyer and seller may prefer that the tenant move.
One way to get the tenant to leave before the property is placed on the market is to negotiate with the tenant. For example, a common strategy is to offer the tenant money in return for agreeing to terminate the lease ahead of the contract schedule. 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 so he/she can say that the property will be tenant-free when the property closes. It’s normally better if the tenant vacates before the property is listed because there’s the added risk that a tenant may agree to leave early but then may not do so.
Practical alternatives
Since most home rental leases are year to year, the seller could just provide the proper termination and then list the property when the tenant moves out.
Also, the buyer may agree to buy the property conditioned on the tenant leaving the property when the lease expires.
Sales consideration if the tenant stays
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 to enhance the sales price and the attractiveness of the property.
Sellers should want:
- The tenant to make the property as clean and attractive as possible. First impressions count a lot when buyers consider purchasing a home.
- 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 arranged. If an agreement with the tenant can’t be reached, then the lease agreement should generally dictate how much advance notice is necessary for the landlord to enter the property.
Review the notice requirements with an experienced Florida real estate lawyer. In addition to time notices, there are formality notices. Generally, notices may require certified mail or registered mail and not just putting a sticky note on the door.
Additional seller/tenant considerations
Sellers normally prefer that the tenant not be in the home at the time the listing agent or broker shows the property. The freer the buyer is to make his/her own inspection and decision, the better. Consider paying for a meal at a local restaurant for the tenant while the property is being shown. Maybe even drive him to the restaurant or arrange for cab service.
Sellers might consider using a cleaning service if the tenant is a tidy and neat type of person.
Help the tenant find a new place. In addition to financial incentives, the seller might consider helping arrange for the tenant to find an apartment, another home for rent, or helping the tenant buy a property of his/her own.
Additional legal considerations
Any major incentives such as a cash reward for leaving the property before the end of the lease period should be put in writing. So, there’s no dispute over the terms. Often, just the act of putting the terms into a written contract helps tenants honor the terms of any agreement.
While some listing agents use a key safe to gain access - if there is a tenant in the home, then the seller and broker should clarify with the tenant the proper method of entry.
Understand the tenant’s desires after the sale takes place. It helps if the tenant and buyer can talk and discuss what will happen after the original lease term expires. Will the buyer be able to live in the property, for how long, at what rental price, and under what terms?