Tenants’ rights when you sell
In every state, tenant leases come with a set of rights. The terms of the lease do not evaporate because you sell the unit, so if your renters have a long-term lease, they are entitled to stay as long as they fulfill their contracted responsibilities.
In addition, your lease probably requires you to give your tenants notice before you (or potential buyers) can enter the premises — 24 hours is typical. And while tenants are not allowed to mistreat the property, your lease probably does not require them to keep the place spotless or staged for viewing.
Should you ask your tenants to leave?
If your tenants are on a month-to-month agreement, you can move them along with 30 days' notice. Or leave them there, keep the rent coming in, and work with them. If you have a long-term lease, and your tenants have not breached its terms, you can try to negotiate an early termination — either an incentive to move now or to vacate when the property sells.
If your prospective buyers are mostly investors, though, a good tenant and a profitable long-term lease can be a selling point. However, if you’re marketing mainly to owner-occupiers, the presence of a tenant can be off-putting and shrink your pool of potential buyers.
Questions for landlords
Your decision, then, depends on a few factors:
- Are the tenants on a month-to-month or long-term lease?
- Is their rent up-to-date?
- Are your tenants honoring the terms of the lease?
- Is the unit a single-family home in a neighborhood of owners? Or a condo in a more transient community, like a resort or near a university?
- How hot (or not) is your housing market?
The factors that may push your decision toward retaining your tenants include:
- The tenants have a long-term lease.
- Your tenants are good to the property and on-time with the rent.
- The unit is located in a transient community (more buyers are likely to be investors).
- The housing market is hot (tenants are less likely to deter buyers).
And factors that may motivate you to move your tenants out (if possible) are:
- The tenancy is month-to-month.
- Your renters are slobs or difficult or behind on rent.
- The home is a single-family residence in an upscale community.
- You’re selling in a buyer’s market.
Understand that your tenants, if they have not breached the lease, are entitled to stay for the full term if they want. You can’t force them out; you can only offer some incentive to persuade them to vacate.
How to work with your tenants
Your first task is to have an honest conversation with your tenants before listing the property. Reassure them that the terms of the lease won’t change until it expires. Have a discussion about your expectations and their concerns:
- Under what conditions will potential buyers tour the property?
- How much notice will they have?
- What days and hours are off-limits?
- Is hygiene or disease prevention a factor? (Some parts of the country are largely unvaccinated still and COVID-19 remains a concern for many tenants and homeowners.)
- How would you like them to prepare for showings? (You probably cannot force them to leave the premises or clean and deodorize, but you can ask nicely. You can't expect them to spend more money to keep the property clean — especially if they already have various loans, whether student or personal.)
Address the tenants’ concerns. If they can’t or don’t wish to keep the home showroom-sharp, offer to provide a regular cleaning or yard service. If, for example, they meditate every day at 7 a.m. and don’t want visitors then, agree to honor that. Put your agreement in writing so everyone is on the same page. If you’re friendly and respectful, you’re more likely to get cooperation.
In some markets, agents don’t customarily show tenanted property without an offer on the table. Serious buyers, especially other investors, won’t have an issue with this because they can always cancel or renegotiate the sale if they don’t approve of the property. Other agents require at least a preapproved loan or proof of cash to close before allowing a tour.
You can make it easier on everyone by commissioning a very thorough and professional video tour. Include a lot of pictures of the home’s good points — but don’t sugarcoat anything ugly that buyers will see when they tour the home. You don’t need to waste time giving tours to people who will walk when they see the real house and not the advertised fantasy.
Carrots are better than sticks
It pays to have a good relationship with your tenants if you need them to help you sell the house. There are many ways to sweeten the deal if you want them to leave or tolerate buyers:
- If you want them to vacate upon the sale, you can offer to cover their moving costs and perhaps one or two months of rent at their new home.
- A tenant who is behind on rent or careless with the property can be evicted. But it may get ugly, take months, and the home may be damaged. But you may be able to move deadbeats along gently by forgiving unpaid rent, helping them move or returning their deposit even if they don’t deserve it.
- Showing concern for tenants’ privacy and comfort during the marketing process will hopefully get you similar consideration when you need to show the home.
- Offering gift cards to a local coffee shop can make it easier to get tenants to leave when buyers tour the home. And reassure them that buyers will be accompanied at all times while in the home.
- Let your renters know if you’ll be marketing to investors rather than occupiers. That may make them more likely to cooperate because they’ll want to impress the new owner, who may be their future landlord.
Understand that financial incentives can push a tenant into cooperating on some level. But establishing a good relationship and transparent communication will usually get you a better partnership. It may even save you money and help you sell your property faster.