Tenant-Occupied Property Sales
The Landlord Blueprint to Selling with Renters in Place
Last Updated: October 09, 2024
Key Takeaways:
- A tenant's existing lease automatically transfers to a new owner because a sale doesn't terminate a lease.
- As a landlord, you must meet certain notice requirements before you can begin showing the property.
- For showings, both tenants and landlords must be reasonable and find a time that works for both parties.
Table of Contents
- What does selling a tenant-occupied property mean?
- Can I sell a property with a tenant living in it?
- Using a Real Estate Purchase Agreement
- When is tenant occupancy a selling feature?
- First things first: Informing your tenant
- Giving your tenant the opportunity to buy
- Displaying a for-sale sign
- Navigating showings when a tenant lives in a property
- Can tenants refuse showings?
- Required notice for showings by state
- What if a tenant refuses property access?
- Maintaining cleanliness for showings
- What about transferring the tenant’s security deposit?
- What about commercial tenant-occupied properties?
- Use LawDepot to manage and sell your real estate properties
Selling a property is a complex endeavor for most people, no matter the circumstances. There’s setting the right price, staging the home for showings, navigating offers and negotiations, and dealing with paperwork.
Even in the most straightforward scenarios, it’s usually a headache.
So, it makes sense that putting a tenant-occupied house on the market adds a layer of complexity.
Whether you’re listing a house, apartment, or condo, you must consider the tenants’ rights, schedules, and lease agreements. In addition, you have to continue meeting your legal obligations as a landlord despite pursuing a sale.
What does selling a tenant-occupied property mean?
Selling a tenant-occupied property means listing real estate where a renter currently lives. In some cases, the tenant moves out before the new owner takes possession. Other circumstances require or enable the tenant to stay throughout the ownership transfer.
Tenant-occupied property can also be commercially zoned real estate where a renter currently operates their business. Although this article focuses primarily on residential properties, many of the same considerations apply to commercial rental properties.
Can I sell a property with a tenant living in it?
Yes. Selling a property with a tenant is legally permissible. However, both the seller and buyer must check the tenant’s lease agreement to ensure it doesn’t include any provisions that prohibit a sale. The seller should provide the buyer with relevant lease agreements.
Generally, when a buyer purchases a tenant-occupied property, existing lease agreements automatically transfer to them. The new owner becomes the landlord. This means that a property sale does not terminate leases or evict tenants.
It’s vital to understand that tenants have the right to stay in the rental property until their lease or rental agreement ends. However, just because selling with a tenant is allowed doesn't always mean it's the ideal choice.
You, the buyer, and the tenant don’t need to use a Lease Amendment or do anything to change the lease. The buyer and the tenant can continue under the old lease until it ends, and then sign a new one.
As the seller, you don’t need to worry about your name remaining on the lease after the sale. The lease is part of the sale,and the buyer takes on your role as the landlord. For example, in Wisconsin, new property owners are usually accountable for issues arising after they take ownership. However, every situation is unique and your local laws and the Purchase Contract can affect how and when responsibilities are transferred.
Using a Real Estate Purchase Agreement
Once your property has a buyer, the Purchase Contract and other paperwork should include details of the lease, and how responsibilities will be transferred from the seller to the buyer. If you’re using LawDepot’s Real Estate Purchase Contract, you’ll have to add these details as an additional clause.
If you're the seller, you don't want lingering responsibilities after the sale. As the buyer, you don't want to leave any stones unturned, such as having to chase after the seller for the tenant’s security deposit.
Neither party wants to have to go to court to resolve a question like, “What happens if the tenant makes a maintenance request after the Purchase Agreement is signed but before the buyer takes ownership?” A comprehensive and complete Real Estate Purchase Agreement should anticipate potential issues and delineate where responsibilities start and end.
When is tenant occupancy a selling feature?
Depending on your property and situation, buyers will have varying views of existing tenants.
If your property has a tenant living there and the buyer wants to keep renting out the space, they might see it as a selling feature. There are several instances where this might come up:
- First, there are houses with secondary suites , such as basement apartments or nanny suites. The new owner might want to rent out the suite to the same person who's already there.
- Next, consider apartment buildings and condominium complexes . If someone buys one of these buildings, they might want to keep renting out all the units to those already living there. This way, they can keep making money from the rent without skipping a beat.
- Sometimes, buyers purchase properties only as investments , not for their own residence. In this case, they may only be looking for rental income. They might be keen to keep the current tenant instead of looking for a new one.
Finding a quality tenant can be a hassle. It’s challenging and inconvenient. You have to advertise the vacant property, screen applicants, conduct showings, and call references. Many buyers and real estate investors are pleased to purchase a property with an existing renter who is up-to-date with rent and has a lease agreement in place.
First things first: Informing your tenant
When selling a rental property, informing your tenant before listing it for sale is usually a good idea. On the other hand, Informing them before you begin showing the property is a legal requirement.
Notice regarding the sale
If you’re ending a tenant’s lease soon and they won’t be affected by showings or the sale, then notifying them could be unnecessary. But if they will remain in the rental property after the sale, you should definitely give them a heads-up.
Generally, there aren’t specific requirements that obligate you to notify your tenant that the property is listed for sale. However, there are exceptions. In the next section, we’ll discuss the instances where you may have to inform a tenant and give them the chance to buy the property first.
| Though you may not have to inform a tenant that a property is listed for sale, some states do have requirements that obligate you to tell them about an impending ownership change. For example, in Wisconsin , landlords must provide tenants with written notice within 10 days of a change of owner or manager. |
Even when you’re not obligated to tell your renter that the property is listed for sale, it’s best practice to tell them. Respectful communication is key. By telling your tenant, you’re keeping them in the loop and settingthe foundation for a smooth sale.
As a tenant, can you imagine scrolling through property listings online and seeing the space where you’re living? It could be jarring and upsetting for a tenant to find out about the sale in that way.
Also, sometimes informing your tenant of a sale is unavoidable. Suppose you need photos of your rental property to add to an online listing. It would be pretty difficult to explain why you’re photographing the tenant’s space without informing them of your intention to sell.
Demonstrating respect for tenants can significantly improve their cooperation, which is crucial during showings and negotiations. A lack of respect may lead to tenants neglecting property upkeep or, in extreme cases, sabotaging the sale out of frustration.
After notifying your tenant of the sale, you or your real estate agent will probably want to advertise the property for sale. In a following section, we’ll dive into displaying a for-sale sign on the property.
Notice regarding showings
Although you may not be obligated to notify your tenant that the property is for sale, you need to meet certain notice requirements before you can begin showing the property. These notice requirements can inadvertently force you to inform your tenant of the sale.
For example, the California Civil Code enables landlords to show their properties only after giving tenants appropriate notice. It requires the landlord to provide a written notice that the property is for sale and for 120 days (i.e., about four months), the landlord may schedule showings by providing 24 hours’ notice.
Further below, we’ll discuss navigating showings when a tenant lives in a property and the required notice you must provide.
Giving your tenant the opportunity to buy
Before you list your property, have you asked the current tenant whether they’d want to buy it? Of course, this scenario applies more to those selling a detached home or single suite than an entire apartment building or condominium complex.
If a tenant enjoys living in your property and has the means, they may show interest in the sale. You’ll never know unless you ask. Selling it to them could be a convenient solution hiding right in front of you.
What if your tenant wants to buy the property but can't afford it right now?
You could talk to them about signing a new lease with a rent-to-own or option-to-purchase clause. These provisions would allow them to keep paying rent and buy the property later. Depending on the clause you use, they’d either be required to buy it or have the option to buy it.
Another option is seller financing, which is an alternative to a mortgage. In this arrangement, the seller acts like a bank. Instead of the buyer getting a traditional mortgage, they pay you in installments until they've paid the whole price. During this time, you keep the legal rights to the property. Once the buyer has paid in full, you transfer the property to them. To outline this arrangement, you can use a Contract for Deed.
Also, in some jurisdictions, tenants can have a legal right to purchase the property first.
Do tenants get the first choice to buy?
Certain policies and clauses may enable tenants to have the first choice to buy a for-sale rental property. Let’s go through them:
Right of first refusal (ROFR)
Although they are uncommon, you should check if your tenant’s lease includes a right of first refusal (ROFR) clause or stipulation. These clauses grant tenants the first opportunity to make an offer on the for-sale property and buy it if it goes on the market. In this case, you must prioritize their offer.
You can’t negotiate or accept offers until you’ve notified the tenant about the sale and allowed them to submit an offer. Usually, the clause stipulates a necessary timeframe for you to notify the tenant.
If the tenant decides they’re interested in purchasing the property, they have the first right to make an offer. If the clause includes a specific asking price, they must offer that amount.
Tenant opportunity to purchase (TOPA)
In addition, you should be aware of tenant opportunity to purchase (TOPA) policies. City or state officials may enact a TOPA policy that requires landlords to notify tenants in multifamily buildings of their intention to sell the property. In this case, the tenants collectively have the first chance to buy the property.
This approach transforms the risk of eviction and displacement into a homeownership opportunity, helping to reduce racial disparities in homeownership and wealth.
In the United States, TOPA and ROFR policies exist in various districts, cities, and counties. Some of them include:
Displaying a for-sale sign
Prospective sellers may be curious about whether they can display a for-sale sign on a rental property where a tenant is currently living.
Unfortunately, there’s no clear-cut answer that applies to every situation.
To have a more solid idea of what you’re entitled to as a landlord, you have to dive deeper into the state laws where your rental property is located. In addition, it’s imperative that you closely examine the tenant’s lease for guidance.
LawDepot’s lease template includes a provision regarding for-sale signs. Our template states that during the last 30 days of a lease, you or your real estate agent can display a “for sale,” “for rent,” or “vacancy” sign on the property.
If you’re limited to when you can display a for-sale sign, you may not have the legal right to install it sooner.
But remember that communication and respect go a long way. If you ask nicely and communicate with your tenant, they may be fine with the sign going up earlier.
Also, keep in mind that tenants have the right to quiet enjoyment. By displaying a for-sale sign, the tenant could get unwarranted attention and disruptive knocks at the door. So, their rights must be fairly balanced against your right to list, advertise, and ultimately sell your property.
Navigating showings when a tenant lives in a property
When selling tenant-occupied properties, you must understand the rights and responsibilities of both landlords and tenants before scheduling viewings.
Can tenants refuse showings?
A landlord generally cannot force a tenant to leave the property for a showing. Tenants have the right to occupy the rental unit as per the terms of their lease agreement.
However, tenants cannot outright refuse all showings either. Tenants must permit reasonable access to the property for prospective buyers, provided proper notice has been given.
It’s completely fine if a tenant cannot accommodate a landlord’s request to enter. Tenants can negotiate the times and frequency of showings to minimize disruption to their daily lives.
| The main takeaway is that both parties have to be reasonable and work together to find a time that works for everyone. |
Required notice for showings by state
Landlords must always give tenants notice before entering their rental properties to show the property to a prospective buyer.
The notice period varies by state, with some requiring just 24 hours and others outlining a longer window. In states where there is no statute or a notice amount isn’t specified, you should still aim to give your tenant at least 24 hours notice.
The table below outlines the specific notice requirements for tenant showings in each state, helping you ensure you're complying with the law and maintaining a positive relationship with your tenant. Keep in mind that some states allow municipalities to create additional rules that could affect these state requirements. It’s important to check your municipality’s requirements as well.
| State | Notice required | Statute |
| Alabama | 2 days | |
| Alaska | 24 hours | |
| Arizona | 2 days | |
| Arkansas | Not specified | |
| California | Reasonable notice (24 hours) | |
| Colorado | No statute | N/A |
| Connecticut | Reasonable notice | |
| Delaware | 48 hours | |
| District of Columbia | 48 hours | |
| Florida | Not specified | |
| Georgia | No statute | N/A |
| Hawaii | 2 days | |
| Idaho | No statute | N/A |
| Illinois | No statute | N/A |
| Indiana | Reasonable notice | |
| Iowa | 24 hours | |
| Kansas | Reasonable notice | |
| Kentucky | 2 days | |
| Louisiana | No statute | N/A |
| Maine | 24 hours | |
| Maryland | No statute | N/A |
| Massachusetts | Not specified | |
| Michigan | No statute | N/A |
| Minnesota | 24 hours | |
| Mississippi | No statute | N/A |
| Missouri | No statute | N/A |
| Montana | 24 hours | |
| Nebraska | 24 hours | |
| Nevada | 24 hours | |
| New Hampshire | Adequate amount under the circumstances | |
| New Jersey | Not specified, but tenant permission is required | |
| Exception: Buildings with 3 or more units require reasonable notice (1 day) | ||
| New Mexico | 24 hours | |
| New York | No statute | N/A |
| North Carolina | No statute | N/A |
| North Dakota | Reasonable notice | |
| Ohio | 24 hours | |
| Oklahoma | 1 day | |
| Oregon | 24 hours | |
| Pennsylvania | No statute | N/A |
| Rhode Island | 2 days | |
| South Carolina | 24 hours | |
| South Dakota | No statute | N/A |
| Tennessee | 24 hours | |
| Texas | No statute | N/A |
| Utah | 24 hours (unless rental agreement says otherwise) | |
| Vermont | 48 hours | |
| Virginia | Not specified | |
| Washington | 1 day | |
| West Virginia | No statute | N/A |
| Wisconsin | 12 hours (must enter at reasonable times) | |
| Wyoming | No statute | N/A |
What if a tenant refuses property access?
If a tenant is refusing property access, it’s important to remind them of their responsibility to comply.
Most lease agreements include a clause that requires tenants to provide reasonable access to the landlord for specific purposes, such as showing the property to prospective tenants or buyers. Even without this clause, state laws generally outline the landlord’s right to enter their property.
Should a tenant continue to deny access for showings, you may need to take legal action resulting in the tenant getting evicted. By not having reasonable access to your property, you may have grounds to terminate the lease and initiate the eviction process.
To support any legal action, landlords should keep records of their attempts to schedule showings and the tenant's refusal to cooperate. This documentation may include:
- Written notices provided to the tenant regarding the planned showings
- Evidence of communication (e.g., emails, text messages) demonstrating the tenant's refusal
Maintaining cleanliness for showings
Landlords cannot legally compel tenants to keep the rental property clean specifically for showings unless it is stipulated in the Lease Agreement. In other words, there are no federal or state regulations mandating tenants to maintain the property in a specific condition for sale purposes. Property maintenance clauses typically cover routine upkeep and not additional cleaning for showings.
Keeping the property presentable is beneficial for a smoother sale process. However, it’s not always easy to facilitate.
LawDepot spoke with Ryan Carrigan, CEO and Co-Founder of moveBuddha, a company that helps people calculate costs and plan their next move. Carrigan warns landlords that tenants are notoriously bad at keeping a home ready to show.
“They may leave dishes in the sink, or not leave the place tidy,” said Carrigan. “The last thing you want to do is have potential new owners, or even investors, walking in to see a property that is for sale that is a complete mess. It’s a huge turn-off for buyers.”
To incentivize tenants to maintain cleanliness, landlords might consider offering temporary rent reductions during the sale period. This gesture compensates tenants for their extra effort and cooperation in keeping the property tidy.
If you’re dealing with a tenant who won’t keep the place tidy for showings, Carrigan says that your best bet may be to wait until they vacate to list the property.
What about transferring the tenant’s security deposit?
If you are selling the property to another landlord, you must transfer the security deposit to them when you transfer property ownership. If you’re working with a real estate agent, it’s possible that they will coordinate this for you.
Of course, if you had losses or expenses caused by tenants, you could deduct the appropriate funds from their security deposit and transfer the remainder to the new owner. Or, you could work any repair costs you incurred due to tenants into the sale cost and forward the full amount to the new owner.
If your tenant is not staying with the property after the sale and has not broken the terms of the lease causing you financial loss, you must return their security deposit.
What about commercial tenant-occupied properties?
If you’re looking for information on selling and renting commercial properties, this section is for you.
Selling a tenant-occupied commercial property introduces a unique set of considerations compared to selling residential properties, primarily because Commercial Leases often have longer terms and more complex agreements. This complexity requires a higher level of due diligence from both buyers and sellers.
First, the seller should provide potential buyers with comprehensive documentation of the current tenant’s lease terms, rental history, and responsibilities. This transparency is essential for giving buyers a clear understanding of what to expect in terms of cash flow and landlord obligations.
Buyers should conduct a thorough assessment of the lease agreements to gain insight into the financial health of the investment, potential challenges, and opportunities. Since commercial leases are often long-term (i.e., multiple years), it’s very important that buyers know what they’re getting into before closing on a sale.
Use LawDepot to manage and sell your real estate properties
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With our Free Trial, you’re empowered to manage and sell your real estate properties on your own. Whether you're handling rental properties or looking to sell real estate, LawDepot has you covered.
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