Selling a house with tenants in situ comes with some unique opportunities and challenges. The key to a successful real estate sale is to be prepared by knowing your rights and obligations as the owner and vendor of the property.
1. Don’t try to act on the sly
You may be tempted to keep a pending sale to yourself, but it’s actually a legal requirement that you inform your tenants in writing when you put your property on the market. To keep the peace, it might be wise to tell them even earlier than that, or as soon as possible, so they can assess their own situation, discuss the situation with you and make plans. If you need help there are notice templates available at tenancy.govt.nz
2. Tenants sometimes become buyers
Try to deliver the news that you are planning to sell face to face to your tenants if you can. Keeping them on your good side during the process can ease a ton of potentially testy times involving open homes, access and repairs etc, and being open and transparent about what’s happening will help engender their sympathy and understanding much better than if you keep an arm’s length between you. Sometimes tenants may even wish to accept a first offer to purchase their rented home, and selling a house to a tenant - although it certainly doesn’t happen every day of the week - might just be one of the easiest ways to transfer a property cleanly and quickly, so be sure you don’t deny your tenants the opportunity to be first in the buying queue.
3. Some buyers are looking to invest
You may have already decided to sell your house with the tenancy attached, or you may be considering evicting your tenants first so you can do the place up or at least spruce it up for sale. Consider though, that a fellow investor purchasing a property more often than not results in a much cleaner, quicker, simpler sale, and would certainly save you a ton of effort in the long run. Investors are, on the whole, more savvy about the buying process, and often less likely to prolong negotiations or make unreasonable demands. The fact that you have a sitting tenant with a tenancy agreement in place will be a real plus to a potential investor. This is another way to get a simple sale, so be sure to weigh up the advantages, even if it means selling for a slightly lower price. After all, how much is all that sprucing going to cost you in the end?
4. Selling to another landlord
If you sell your property directly to another investor who becomes the landlord to your existing tenants, both the landlord’s details and the bond record on the tenancy agreement need to be updated. Contact information must be shared between the new owner and the tenant, but otherwise the conditions of the current tenancy are not affected.
5. Selling to a buyer who wants vacant possession
If a buyer wants to purchase your property with vacant possession (i.e with no tenants in the house), you’ll need to evict your tenants. New Residential Tenancy Act rules state that if your tenants are on a periodic tenancy, you must give at least 90 days’ written notice to end the agreement. If your tenants are on a fixed-term tenancy (granted on or after 11 February 2021) you can also end the tenancy on its expiry (or later) with 90 days’ written notice. Consider these situations carefully as you take your property to the market, because eviction complications may affect a potential settlement date with a new buyer. Also, be aware that a fixed-term agreement will hold you to the term of that agreement, even if you do want to sell. A fixed-term tenancy can be ended if both parties agree, but if not, then the house can only be sold with the tenancy in place.
6. Selling when you know you’ll sell an empty property
If you know you want to sell an un-tenanted property, you’ll need to evict your tenants. You’ll need to give tenants on a periodic tenancy at least 90 days’ written notice so you can sell with vacant possession. If your tenants are on a fixed-term tenancy (granted on or after 11 February 2021) you can only end the tenancy on expiry of the agreement (or later) with 90 days’ written notice, unless your tenant agrees to vacate earlier. If you choose to terminate the tenancy (at expiry) because you wish to sell the property, you’re not permitted to market the property for sale until the tenancy has ended, although you can make preparations for sale as long as the tenant agrees. A fixed-term tenancy can be ended if both parties agree, but if not, then the house can only be sold with the tenancy agreement in place.
7. Getting access to the property you’re selling
There are some specific rules around gaining access to your rental property if you want to sell. You'll need to get your tenant’s permission before entering the house, whether that’s to take photos, for you or your real estate agent to show potential buyers through, or if you’re having a valuer, real estate agent or building expert inspect the property. Tenants are legally allowed to be present in their home at all times, including during open home viewings. Although the majority won’t want or choose to be there, some tenants may exercise this right, particularly if they’re unhappy or disgruntled about the sale.
8. What tenants can refuse
Tenants can refuse to have their personal stuff photographed, and even though they can’t reasonably refuse access to the property, they can put limits around it, such as naming only certain days or times of the week for viewings, or insisting on appointment-only showings. Tenants can also completely refuse to have open homes or an auction on site.
9. Consider a rent reduction offer
Legally, tenants are allowed to ask for a temporary rent reduction for allowing open homes, and as compensation for the general inconvenience of the selling period. While you, as the landlord, are not obligated to agree to giving your tenants a rent reduction, it could be a smart way to encourage co-operative behaviour. Some rent relief may sweeten the bitter pill they have to swallow in letting viewers traipse through their home or having to clear out in order to allow a real estate agent do their stuff, not to mention provide some financial help during a potentially stressful time.
10. Make sure your tenants are fully paid up
If you’re thinking of attracting an investment buyer to your property, it’s a good idea to ensure your tenants are fully paid up with their rent. Accounts in arrears are not going to appeal to potential buyers, especially if a fixed-term arrangement has locked the tenant in to the agreement for a time. If you’re dealing with really delinquent tenants, now could be the time to strike a bargain by telling them you’ll forgive the rent arrears in exchange for them moving out of the property. In this case selling a vacant property may be preferable to selling one with tenants who are way behind on the rent. Be sure you put all the arrangements in writing and take legal advice so you’re not in for any nasty surprises. A resolution service run by Tenancy Services called Fast Track may also be helpful.
11. Jazz up the property as well as you possibly can
While investment buyers can usually see past the tenant’s possessions to the property itself, it’s a little harder for buyers looking for their own home to do so. Don’t be reluctant to ask tenants to help you out by having a good sort and tidy-up ahead of your marketing campaign. While they’re not legally obligated to pretty things up for you, there’s no harm in asking, and if you’ve given them some incentive like a rent reduction, they may well be happy to oblige and take advantage of the opportunity to have a spring clean. In terms of outdoor areas, ensure gardens and lawns are well maintained to maximise curb appeal, and make any repairs to the exterior or fencing to reassure a potential buyer of the quality of the home. Just be sure to keep good lines of communication open with your current tenant, give them plenty of notice before you carry out any works, and only perform the work during working and weekday hours.
12. After the sale
Once your successful real estate sale has taken place, you must pass on all the contact details and information about the new owner to the tenant, and provide the new owner with a copy of the tenancy agreement. The new owner must then confirm their name and contact details with the tenant and tell them how they should pay the rent. In terms of the original bond, your interest in the tenant’s bond will now pass to the new landlord. Both you and the new owner should seek independent advice with regard to the bond and any effect it may have on the sale and purchase agreement. There will also be a change of landlord form to complete with Tenancy Services.