Selling a house is complicated enough. But when the house is being rented and occupied by a tenant, the degree of difficulty is compounded exponentially.
Because tenants are protected by various state and local laws that prevent landlords from kicking out occupants for no good reason, they are in the driver’s seat, at least until their leases expire. But there are several ways to get them to move before then, or at least to cooperate in the sale.
(Note: This column does not constitute legal advice. Before taking any action, check with an attorney who specializes in real estate matters.)
First, check your lease to see what it has to say on the matter. Generally, the lease precedes the sale of the house, meaning the tenant is entitled to stay until the end of the lease. But it might also spell out what is required of both parties should the property be put up for sale.
For example, as long as the landlord gives the tenant proper notice, the lease might call for the tenant to keep the house in good condition for showing and make it available to would-be buyers during certain times. If she doesn’t, that in itself could be grounds for eviction.
Eviction, of course, is the last thing you want when selling your property. So it is imperative that you communicate with your tenant and answer any questions he or she may have.
Although the tenant is entitled to stay, some will pick up and move on their own because of the uncertainty surrounding the new owner and landlord. In that case, the tenant could be breaking the lease, in which case he would not be entitled to the return of his security deposit. Still, agreeing to return his deposit may be just the incentive he needs to leave early.
But moving out early cuts both ways. An empty house is easier to sell than one occupied by an uncooperative tenant. However, while losing a tenant makes things easier logistically, it also means a loss of rental income until the house is sold. If you need that money to make your mortgage payment, you could be in a world of hurt, especially if it takes more time than expected to fix up and sell the house.
So keep the communication lines open and try to work with your tenant as much as possible.
If the house hasn’t been kept up as well as it should and you really have to fix it up, you have a couple of options. One, offer the tenant a cash incentive to move out early; or two, simply wait until the lease expires before listing the house.
If you choose option one, how much to offer depends on how important it is to you to sell right now: that is, when the market is tight, inventory is low and houses are selling at warp-speed. Offering to pay the tenant’s moving expenses up to a certain limit might just do the trick.
But the incentive doesn’t have to be in cash. For example, you might offer to cut the rent by a certain percentage if he cooperates in the selling process. If he straightens up the place every morning in case of visits from potential buyers, you might offer a steep discount on the rent. Here, it is important to set some ground rules. For example, in what condition must the property be kept? How much advance notice will be required for showings? When will open houses be held?
If the tenant doesn’t want to cooperate, your other option is to wait. And it may be the best choice. After all, why bring interested buyers to the house when you don’t know whether or not the door will be deadbolted, or what shape the place will be in if you do get inside? Nothing turns prospects off like a kitchen sink piled high with dishes, or clothes tossed all over the place. Or opening the front door and finding the tenant and a bunch of buddies noisily sitting around, drinking beer.
Ideally, you’d sell the house while it’s occupied, but still clean and tidy. But an empty house is preferable to one in embarrassing disarray. Plus, there’s a huge upside to the 24/7 ease of access for showings without having to go through a third party.
If you decide to wait to sell until the tenant has vacated, you’ll want to follow the exact procedure described by the lease. If it requires that the tenant be given 60 days notice, than make sure you provide a written notice of your intent exactly 60 days before the lease comes to an end. If you wait until the lease ends before sending the notice, than the tenant can remain two more months before leaving.
You can send the notice by registered mail with a signed receipt required, but sending it by regular mail should be enough to satisfy a judge that you met your obligation. Remember, though, to keep a copy of the notice, and perhaps a stamped receipt from the post office.