I plan to list my single family rental property for sale later this year. The property is currently occupied by a tenant with six months remaining on the lease. At what point do I notify the tenant of my intentions?
Generally speaking, trying to market an occupied rental unit is usually problematic at best. There can be potential problems in scheduling work for property improvements or repairs, real estate agent showings, property inspections, or other activities related to listing a property for sale. Despite required advance notification to the tenants, access to the property is often a problem. There is also a consideration that the property may not show to its best advantage when occupied by tenants.
A better plan to market a rental property that could result in the best price with the least hassle is to wait until the property is vacant, either because of lease expiration or having done a lease buyout, and all necessary and/or desired cleaning, repairing, and/or improving has been fully completed before listing the property for sale.
If you choose to list the property for sale while the tenant is still in residence, it may be a good practice to require that the selling agent does not use on-site signage, or install a lockbox to access entry to the residence. Showings of the property should be by appointment only. The tenant household should be protected by all measures for privacy, safety, and security of persons and property. Keep in mind that the tenant/household has the right to quiet enjoyment of the rental property and the right to privacy. It is possible that multiple visits will be made to the property by potential buyers and/or their agents (e.g., lenders, appraisers, inspectors, contractors). Restricting access to the property for permissible purpose, visitors accompanied by appropriate personnel, and permission for access granted by the tenant can help lessen tenant concerns about safety and security.
All access to the leased premises requires advance notice of entry in accordance with state law and permission by the tenant. This will require cooperation of the tenant and coordination with the tenant’s schedule and the schedules of visitors and vendors.
When you feel you are ready to put the property on the market, that may be the best time to have a preliminary discussion with your tenant regarding your plans and how those plans might affect them. You should assure your tenant that you will make every effort to minimum their inconvenience for access purposes. You can assure them that their existing lease is in effect until the lease expiration date and that the lease is binding upon a buyer if a transfer of ownership takes place before the lease expiration. It may be a possibility the tenant could ask about early termination of their lease. You should be prepared to handle that discussion with possible options.
You must also keep in mind that sales can fall through, meaning that tenants’ lives must again be disturbed by the process related to the needs for entry. Keeping the tenant informed of events in the listing, marketing, and contract details will help the tenant understand the process and what to expect.
Providing the tenant with written notice of your intent to sell the property is good customer service to help reassure the tenant on the important details to them, mainly that they don’t need to change how they live, their lease agreement is fully binding on a future buyer, their security deposit will be transferred to a new owner through escrow, rent paid past the close of escrow will be credited to the new owner, and they will be notified immediately upon close of escrow and provided with contact information regarding the new owner.