September 2020
Reading Time: 4 Minutes
If you are selling a tenanted property there are additional considerations to be taken into account. Dealing carefully, legally and respectfully with tenants, working out how you can deliver vacant possession if that’s required, and making sure paperwork is in order should all be front of mind before a sale is made.
While there are some advantages to buying or selling a tenanted property there is no doubt it is a more complicated process. Advantages include continuity of tenants for a property investor buying a property with existing tenants, and continuation of income for investors selling their tenanted property. Selling a tenanted property is often the best outcome for the tenants as well, as they will be able to stay in their home for as long as possible and may be able to stay on with the new owner. The downside for the tenant is the uncertainty over tenure, and the disruption of the sale process. The process needs to be carefully managed to respect the rights and needs of all parties. The keys to a successful outcome are strong communication, awareness of the disruption and uncertainty for your tenant, and a willingness to compromise.
If you’re selling a house with tenants in situ, a major decision is whether to give your tenants notice to leave or have them stay through the sale process. Currently, 42 days’ notice is required for periodic tenancies if the landlord has entered into an unconditional agreement to sell the property with vacant possession.
Under the recently passed Residential Tenancies Amendment Act (due to come into effect in February next year), landlords will be required to give tenants 90 days’ notice to terminate a tenancy when the property has been unconditionally sold. If the owner decides to sell the property with the tenants in place and the new buyer isn’t an investor, 90 days’ notice is required for vacant possession. This notice period can be built into the settlement timeframe once a deal is concluded, but results in a long settlement period for both parties.
If you sell a tenanted property and the new owner decides to keep the tenants on, you will need to notify your tenants of the change of ownership, provide a copy of the tenancy agreement for the new owners, arrange for the bond to be transferred to the new owners and apportion the rent on the day of settlement. If the property is managed professionally by a company such as Crockers, it makes good sense for the same company to continue the management. Having a professional property manager helps to minimise the stress for all parties during the sale and purchase of tenanted properties.
It’s important to ensure you keep within the law and respect tenants’ rights when selling or buying a tenanted property. Breaches of the law can lead to fines from The Tenancy Tribunal. Good communication from the outset is critical, well before the listing and marketing process starts. If your sales agent and your property manager are from different agencies, make sure you talk with your property manager before commencing the marketing process, and ensure that your sales agent keeps your property manager in the loop throughout the process. Your tenant should hear from you or your property manager before they hear from the sales agent. Don’t let your tenant learn about the sale process from a ‘For Sale’ sign on the front lawn! Your tenant also has a right to privacy, so if you’re having photographs taken of the interior which shows their belongings, ensure the tenant has a chance to review and approve them before they are published.
It’s worth noting that with fixed-term tenancies, landlords must give notice timed to coincide with the end of the fixed term - they can’t simply give notice to vacate to a tenant because they're selling.
Sometimes, if both the tenant and landlord agree, a tenancy may be ended early. Landlords may offer compensation in this case.
Finally, it’s worth considering how your tenants will respond before deciding to sell a rental property with tenants in situ. Consider how flexible they will be with viewing times and whether they will present the property to its full potential – and consider offering compensation for the hassle factor during the sale process, or paying for a cleaning service to keep the property looking top notch.
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