When a buyer is interested in the property for investment purposes, having tenants in place can be a strong selling point. Rent revenue is guaranteed for the new owner as soon as the purchase is complete.
Tenants, however, may be concerned when they hear their home is about to be sold. Their lives could be disrupted for showings, appraisals, and inspections while the house or apartment complex is on the market. Added to that is the uncertainty about how things might change under new ownership.
If a landlord has worked to cultivate a good tenant-landlord relationship, they stand a better chance of getting the cooperation they will need for a smooth sale. There are some actions they can take to help:
Landlords in Missouri are required to notify tenants in writing of new ownership. In Illinois, the law states they must do so within 10 days of the sale. Aside from the legal requirements, no one likes to be blindsided, especially when it comes to their home and living conditions. Depending on the relationship, landlords might want to consider keeping renters in the loop well before the sale is final.
Any communications about the pending sale should be in writing to protect both the landlord and the tenant. For example, if access is needed to the property for a showing or appraisal, the landlord should inform the tenant in writing.
In the same way that landlords must give ample notice to tenants that they will be entering the house or apartment for maintenance and repairs, they must do the same to show the unit to a prospective buyer. Give at least 24 hours notice and make expectations known: For example, do they need to leave the residence while the real estate agent is there? Try to limit appointments and work with the tenant’s schedule as much as possible.
Acknowledging the tenant’s inconvenience by offering an incentive is helpful. A temporary reduction in rent or offering to hire professional cleaners so the property is always ready for viewing can help compensate tenants for their trouble.
When an owner starts to think about selling a single-family rental property, they may need to look no further than their renter. If approached with the offer, a tenant may have the means and desire to purchase the home. Not only does this save the seller the trouble of putting in on the market, the tenant does not need to prepare for showings or consider moving. All that is necessary is a real estate agent’s help to draft the purchase agreement and handle the closing. It is worth it to the seller to bring up the possibility with the renter.
Ideally, the tenant screening process has found great renters who are pleasant and take good care of the property. But landlords must recognize that even good tenants may be unhappy or even angry about the prospect of a potential sale. Selling a property with tenants will be more difficult if tenants are uncooperative.
If tenants become a problem that could disrupt the sale, or if they were undesirable renters in the first place, it might make sense to postpone a sale until the unit is empty. Obviously, this will be more difficult for a multi-unit property as opposed to a single-family home.
A lease is a binding legal document. It doesn’t end just because the rental property is sold. When selling a property with tenants, the terms of their lease and all of the tenant’s rights listed in it, stay in effect until the end date. An owner hoping to sell can not force the tenants to leave. It also means the new owner can not change the terms and raise the rent or impose a new rule when they take over.
When it is time to renew the lease, however, they can choose to do whatever they like. This could mean a rent increase, requiring a tenant to pay their own utilities (even if they were included under the previous agreement), or prohibiting pets where they were once allowed. But as long as there is an existing lease, all parties are bound by law to follow it.
It might seem easier to sell an empty house or apartment building. Once tenants move out and the space is empty, there is an opportunity for deep cleaning, repairs and upgrades like painting or new carpet—all of which could be attractive to a buyer.
Whether a current leaseholder is a pro or a con depends on the buyer. Without a tenant, there is no immediate rental income, and they will need to market the property and find their own renters. This can mean additional work and the possibility of the apartment sitting vacant for a few months.
If, however, they plan to make substantial changes to the property, or significantly adjust the price, an empty building might be appealing. Also, buying an occupied rental property means “inheriting” another owner’s tenants. If a seller has been lax with screening practices and the type of renters they allow, it can turn away potential new owners. Buyers may be hesitant to take on renters who break rules, do not take care of their apartments, are late with rent, or cause trouble for the other tenants.
When a building is empty, buyers can start from scratch with brand new tenants, rather than trying to work around or force changes on people who live there.
As mentioned above, it is illegal for either the current owner or the buyer to evict tenants without a valid reason. Instead, those wanting to start with an empty apartment must wait for the lease to end, then simply not renew.
An owner can, however, offer incentives for a tenant to leave their lease early, such as forgiving past-due rent or offering a relocation allowance. There may also be a clause written into a lease for “lease termination due to sale.” This isn’t standard language in a lease, but if the owner had the forethought to include it, they may be able to offer a buyer a vacated apartment.
An owner who uses a property management company has several advantages when selling a property with tenants. The relationship with a reputable company such as Select Leasing & Management can be an effective marketing tool when finding potential buyers. In fact, the property management company may have other clients to whom they can recommend the property.
If the new owner decides to keep the same management company, this can reassure tenants that things will be “business as usual” with a manager they already know.
A management company can also assist with scheduling showings and inspections and other communications with the tenants about the potential sale. In the event that incentives are offered or a tenant is asked to leave their lease early, the company can be an effective go-between to make it happen.
When a sale goes through with tenants who will be staying in the home, both the buyer and the seller have certain responsibilities:
Selling a property with tenants isn’t only possible, one already filled with good tenants can be extremely appealing to the right buyer. Sellers must be sensitive to their renters’ needs and know their rights and responsibilities. When they do, they will have a much better chance of completing a sale that works for all parties involved.
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St. Louis, MO, 63131
