Selling a Tenant Occupied Home

Question:

Marsha, I own a three bedroom two bath house in Santa Barbara. I’ve managed the home myself as a rental for many years. My current tenants are three graduate students who’ve lived there for 18 months. I want to put the home on the market. Anything special I should be aware of when selling a home with tenants?

Answer:

I’m sure you’re aware California has strong tenant protection laws. There are strict guidelines a landlord is required to follow with every tenant encounter. Selling your tenant-occupied home is no different.

If the tenants have a month-to-month lease and have lived in the home longer than one year you are required to give them 60-days’ notice to move. If the renter has a fixed term lease you are still able to sell the home, but the buyer is purchasing the home subject to the lease. For example if you are selling the home six months into a one year lease the buyer must honor the remaining six months of the lease. The new owner can’t change the lease terms before the lease terminates.

Tenants’ reactions to hearing their home is being put on the market will vary. Some don’t mind and are willing to cooperate, keep the home clean and show the home with 24-hours’ notice. Others are furious their lives are being disrupted and angry they have to leave. They will do everything they can to sabotage a sale. If your tenant has this reaction, give them notice or wait until their lease is up.  An unhappy renter who fights you at every step will keep your home looking and smelling like the morning after a fraternity party. They will cost you lots of money.

Many buyers, particularly those who intend to occupy their new home, won’t take possession of the home until the tenant moves out. They worry, with good reason, that once they own the home they will not be able to remove the tenant without a big legal hassle.

In my opinion the only good scenario for selling a tenant-occupied home is with an investor buyer who is thrilled to have a well-vetted renter and the established income. Other than that specific situation, the ideal is to part company, make repairs, paint the home, spruce landscaping and get top dollar for your home.

If you must sell a tenant-occupied home then it’s vital to communicate well with your tenants. You have the right to show your property to potential buyers with 24-hours’ notice as long as you have given the tenant 120-day written notice that the home will be on the market. It’s important to balance your right to sell with the tenants’ right of possession and privacy.

Work to obtain their cooperation and offer an incentive. You could offer a reduced rent or consider helping them relocate and covering some of their expenses. It will be much less expensive than an uncooperative and surly tenant.