Selling a property currently let to tenants can be very difficult. Buyers often lose interest very quickly when they hear a property is occupied by tenants. They’ve read alarming stories in newspapers and magazines of property buyers who have struggled for up to a year to evict existing tenants. There are a number of things Property Practitioners can do to assist sellers in selling rented properties, which will undoubtedly make it easier for them to get the properties sold.
- When is the Best Time to Sell a Rented Property?
There is very little wisdom in trying to sell a property more than three months before the existing lease expires. Most landlords try to synchronise selling with the termination of their leases to have occupation available to their buyers at the same time as their tenants vacate the premises. This is not easy to achieve, as many factors can slow down the sale. Without some foresight as to when occupation will be needed, most sellers have to guess their sale dates, and a three-month period from the first marketing of the property is usually the best option.
A difficulty arises when the property is left vacant for a while. Putting short-term tenants in is usually unwise, but the dangers of having an empty home are that its condition may deteriorate, maintenance will be necessary, squatters may move in, the premises may be vandalised, and monthly rental will be lost in the meantime. It is not easy to find the perfect fit, especially when the market is depressed, and homes can take months to sell.
Another potential problem is that some buyers will be looking for early occupation shortly after a sale and may walk away if the tenant is going to remain in the property for a few months. Getting the sale of a rented property right, especially its vacation and occupational time frames, is never easy. Property Practitioners know all too well the problems associated with rented properties, and their sellers need to be encouraged to get their act together upfront to prevent tenancy hassles later.
- Huur Gaat Voor Koop – the Tenant’s Privileges
It is also very important to know what the legal rights of tenants are before rushing into the selling market. A Roman-Dutch legal principle, huur gaat voor koop, still applies in our law and grants tenants a few advantages.
When selling a property, an owner cannot summarily decide to cancel or shorten the existing lease simply by notifying the tenant of the sale. A buyer also cannot do this when they become the new owner of the home. The tenant’s rights take precedence over any new buyer’s rights to occupy a property – this applies to sales of repossessed properties as well. The buyer takes an automatic cession of the existing lease and becomes the new landlord upon registration of transfer of the property, but they remain bound by the lease, allowing the tenant to rest easy, knowing their rights take precedence and their lease will not be affected by the sale.
There is also the potential problem of having to evict a tenant who refuses to vacate when their lease expires. About sixteen years ago, a decision by the Appellate Division, the highest court in the land, determined that the Prevention of Illegal Eviction Act (commonly known as ‘the PIE Act’) applies to normal landlord-tenant lease contracts. Legal analysts have long argued that the decision was incorrect, but it has stood, and no new legislation has been introduced to remedy the imbalance of rights between landlords and tenants when the latter decides to remain unlawfully. The landlord must institute a normal action for eviction and must first give the local authority 14 days’ notice before doing so. Landlords may no longer take the traditional shortcut route of going to the High Court for an immediate eviction order.
- Other Issues Affecting Tenancy Sales
Most Property Practitioners wouldn’t think to check a seller’s existing contract to see if there might be any conditions in it restricting their right to sell.
If the landlord granted an option to purchase the property to the tenant or a right of first refusal, these take precedence over any sale to a third party. If this right is overlooked, it can cause significant problems when the property is prematurely sold to another person. In Washington DC, tenants have an automatic right of first refusal, but that right does not exist here (except in the sale of rented flats and apartments newly sectionalised).
It is always wise to exercise caution when selling properties currently occupied by tenants, and all Property Practitioners should check the existing lease agreement first to ensure that they can freely put the property on the open market.
An inspection of a lease will also reveal if there are any other preferential rights in the lease agreement, such as an option to renew the lease which the tenant could still exercise.
Property Practitioners should never take their seller’s verbal assurances for granted.
Often a seller will confidently confirm that there are no ancillary rights in the lease restraining their right to sell, and they may innocently believe this to be the case. However, property owners are often blissfully unaware of rights that were granted to the tenant when the lease was originally concluded. It is crucial to check all lease contracts before marketing a tenanted property for sale. Ignoring tenants’ rights can, as mentioned before, create headaches for both the Property Practitioner and the landlord later.
- How can Sellers Improve their Selling Prospects?
The most important issue here is to gain cooperation from the tenant.
The seller needs to ensure their tenant will be willing to vacate when their lease terminates. Alternatively, they may need to approach the tenant to see if they are willing to reduce the period of their lease so that the seller can proceed to sell their property. There are several ways to achieve this. Firstly, a good relationship must be maintained with the tenant throughout their tenancy. When the tenant genuinely reports property defects or issues like burst pipes to the landlord, the latter must take steps to ensure that these are attended to quickly and properly. This helps maintain the goodwill of the tenant.
When a Property Practitioner sends potential buyers to view a tenanted property, the rights of the tenant must be respected, especially their right not to be disturbed at inconvenient times or too often in a short period. The landlord should advise the tenant well in advance that they intend to sell the property, so the tenant can make adequate provisions and will not assume they can vacate at their leisure. In the USA, some landlords even offer their tenants a 50% discount off their last monthly rental payment just to secure their cooperation, but this practice is not recommended here. It may have the reverse effect, making the tenant feel they do not have to comply with all their obligations when the landlord wants to sell the property.
Landlords learn the hard way that tenants are likely to cause more damage to the property when preparing to vacate than they have at any time during the lease. By building a good relationship with the tenant during the tenancy, landlords are likely to find that the tenant will reciprocate this goodwill when the time comes for the landlord to sell their property.
