There are many reasons you might decide to sell a property but what do you do if there is a tenant living in that property? Although it is your property and you are free to sell it at any time, if it is tenant-occupied you need to understand that your tenant has rights to your property too. The following things are important to consider before you attempt to sell a tenant-occupied property.
Review the lease
The first thing you should do is review the lease to see if there is a clause that allows you to end the lease early in the event you decide to sell the property. If there is, be sure to follow the process spelled out in the lease to avoid potential legal problems with your tenant.
If there is no such clause, the type of lease will determine your course of action. The most common lease types are periodic tenancies, such as month-to-month, or fixed-term leases with a pre-determined end date.
If the lease is month-to-month
If the lease term is month-to-month your only obligation is to give your tenant proper notice that you will not be renewing the lease. Once you give proper notice your tenant will have until the end of the notice period to move out. California requires you give a month-to-month tenant 30 days written notice if they have lived at the property under one year or 60 days written notice if they have lived at the property longer than one year. (Civ Code §1946.1). You can deliver written notice to the tenant personally, leave it with a person of suitable age, or tape it to the door of the property but you should also mail the notice via registered or certified mail so you have proof that you gave proper notice in case they do not vacate and you have to evict. (Cal. CCP § 1162 and Civ Code §1946).
If the lease is fixed-term
Unless you have an early termination clause in the lease, if your tenant is in good standing you cannot make them move out until the end of a fixed-term lease (unless they at some point do something to violate the lease and can be evicted). A fixed-term lease cannot be canceled unilaterally so you and the tenant must both agree to end it if you want to terminate it early. If your tenant is in good standing and you need to sell the property try speaking with them about it. Let them know that you need to sell and ask if they are amenable to ending the lease early (consider offering them money if they are reluctant). If they are not interested in early termination, sell to an investor who will be happy to have a good tenant already in place. If these tactics do not work you will have to wait until the lease terminates to get them out of the property legally.
Sell to an investor
If you do not want to wait until the end of a tenant’s lease to sell, consider selling to an investor who does not plan on living in the property and who will be happy to have a responsible tenant already in place. Although your pool of potential buyers will be limited, it might be the only way for you to sell your property before a fixed-term lease expires. If you sell to an investor your tenant’s lease, security deposit and rent payments transfer to the new owners and they, like you, cannot cancel the lease early. Be sure that the buyer is aware that there is a tenant occupying the property and understands that they must honor the lease until the end of its term.
Pay your tenant to vacate
If you do not want to market solely to investors and your tenant is in good standing in a fixed-term lease you might consider offering them money to leave. This tactic is sometimes referred to as “cash for keys” and is a good way to lawfully get rid of a tenant before you sell the property. While the amount of money you offer can be anything, the following are some suggestions to help you decide on a figure.
- Look at average rents in the area. If the average rent is more than you have been charging, offer your tenant the difference in the average and current rents for the number of months left in the lease. This way your tenant can move into a comparable property without being out more money than they were expecting to pay under your lease.
- Pay their moving costs. Moving is expensive and if your tenant was not expecting to move until the end of the lease term they might not be willing to leave because they cannot afford to move.
- Offer to pay their security deposit. Like moving costs, your tenant might not be financially prepared to put down a security deposit for an unexpected move. Offer to pay at least the first month’s rent.
- Pay them whatever you can afford. Don’t let your tenant extort you, but come up with a number you can live with, depending on how urgently you wish to sell the property.
If the tenant won’t allow showings
Review the lease to see if there is a clause that will allow you to show the property while it is occupied. If there is, keep your tenant happy by limiting showings and scheduling them at reasonable times. If your tenant will not allow showings despite such a clause you have several options. California law allows you to enter the property regardless of the tenant’s consent, provided you give the tenant 24-hour written notice and showing the property is during normal business hours (Civ Code §1954). But keep in mind that although you are allowed to enter the property for showings with the proper notice if the tenant does not wish you to do so they might leave messes or act out in ways that could scare off potential investors.
Talk to your tenant about why they do not want you to show the property. It might be as simple as they do not wish strangers to open their closet or cabinet doors, which feels like an invasion of their privacy. Once you know why your tenant is resistant to showings you most likely you will be able to alleviate some of their concerns and come up with a workable solution. One such solution could be offering a rent credit to allow peaceful showings and to keep the property clean for potential visitors.
Ultimately if there is a clause in the lease that allows showings and your tenant refuses you can file for eviction but this should be a last resort and should not be done lightly as the eviction process can be lengthy and costly. It might make better sense financially to simply wait until the lease expires.
Regardless of your tenant’s willingness to allow showings, you should limit potential showings, as even the most patient tenant can grow weary of strangers parading in and out of their home. Always schedule a showing when it is least intrusive to your tenant and consider making a video of the property to show to potential buyers to cut down on showings.
You have a right to sell your property whenever you wish but if it is tenant-occupied you should know both yours and your tenant’s rights to the property before listing it for sale.