The following information was correct at the time of writing; however it’s an ever-evolving industry so we do recommend doing your own research.

Selling a property is always stressful, and even more so if it is a rental one. What if there are tenants living in your property? Are there any regulations you need to consider for the sale of your rental property? We will enlist landlords’ and tenants’ rights and responsibilities and analyse the three most common scenarios.

Few landlords and tenants know their rights and responsibilities in such a situation. But we are here to help! In this article, we will talk about what happens when you sell a tenanted rental property. Read on to learn:

• how to inform your tenants that you are selling a rental property;
• what arrangements you need to make with your current tenants to sell the property;
• the things you should remember when selling your property.

Reasons

There are many reasons why a landlord may want to sell their rental property, even if it brings them considerable passive income. The three most common reasons for selling a rental property:

• Being a landlord has become too much work: Sometimes people find that being a landlord involves more work than they had hoped, from dealing with problematic tenants to constantly being on call to resolve issues with the property and not to mention an array of legal processes to follow.
• Capital gain: The property is now worth more than when it was purchased. If the area a landlord has bought in has developed and is thriving, their property’s value will have significantly increased, and they may want to make a profit.
• Experiencing a major life change: A divorce, death in the family, accident or another major life event can often make it necessary to shift one’s priorities from taking care of rental properties to other things.

Whatever the reason that makes you want to sell your rental property, you should get informed about the process beforehand. To go deeper into details, watch this helpful video:

Informing the tenant

If you are set on selling a rental property with tenants on a lease, you may be wondering how to deal with the situation in a clever and delicate manner.

A notice to sell your rental property will have to be sent to your tenants. It is necessary to inform them in advance because:

• They will need time to make alternative living arrangements.
• They will need to allow real estate agents and potential buyers into their home.
• You will need some time to settle any pending issues, i.e. payments and refunds.

The tenant should be informed in writing about the sale, according to the law. This way dates cannot be disputed in the future.

Landlords should make themselves available for a follow-up face-to-face discussion with their tenants to discuss questions they have and details about accessing the property for any preparations that need to take place for the sale. This way your tenants will never find themselves in a position of having to Google “my landlord wants to sell the property I’m renting” for answers!

To find free termination notice templates to use, head here.

Letting potential buyers inside

During the process of the sale of residential rental property, various individuals will need access to it. From cleaners and construction professionals to real estate agents with potential buyers, your tenants will have to allow many people inside. Even though as a landlord you may want to move as quickly as possible to sell your rental property, your tenants may not be as positively disposed to give access to their home.

 

5 things landlords ideally want so they can show the property to potential buyers are:

• Having access to the rental property for sale at all times.
• Asking tenants to show the property on their behalf.
• Allowing potential buyers in for however long they want.
• Letting potential buyers in all areas of the house.
• Keeping the property clean and tidy.

5 conditions that tenants can set for property access are:

• Refuse to allow photographs of their personal possessions in photos that relate to the sale of the rental home.
• Ask for a temporary rent reduction in return for allowing open homes, which is up to the landlord’s discretion to grant.
• Limit access to certain days and times of the week for viewings.
• Refuse open homes and auctions at the property.
• To be present at the home at all times, including during open homes.

 

3 property sale scenarios

Here, we will answer frequently asked questions about the most common scenarios when selling a property so that you can expertly navigate them:

Scenario 1: Selling a tenanted property where the buyer will take over as the new landlord.

Is the new owner going to continue renting out the property to the same tenant?

Yes. If the tenant’s lease has not expired, the new buyer can take over as the landlord for existing tenants.

Is the monthly rent going to change?

No, the conditions of the tenancy are not affected in this scenario.

What happens to the bond?

If there is a bond, the details on the bond record held by Tenancy Services must be updated from previous landlord details to the new landlord details.

Which law needs to be considered?

The Residential Tenancies Act.

Remember: In this case, the landlord and the new buyer must not forget to update the details on the tenancy agreement. The new landlord should also not forget to exchange contact information with the tenants.

 

Scenario 2: Selling a tenanted property where the buyer wants the property to be vacant.

Is the new owner going to continue renting out the property to the same tenant?

No, the property should be vacant when the sale of rental settles.

Is the weekly rent going to change?

No.

What happens to the bond?

If there is a bond, this will be returned to the tenant, provided there is no damage to the property, when the lease ends.

Which law needs to be considered?

Section 51(2) of the Residential Tenancies Act 1986.

Remember: If the current tenants are on a periodic tenancy, the landlord must give at least 90 days’ written notice to end the tenancy. If they are on a fixed-term tenancy, they must agree in writing for it to be ended early.

 

Scenario 3: Selling a property with vacant possession already decided.

Is the new owner going to continue renting out the property to the same tenant?

No.

Is the monthly rent going to change?

No.

What happens to the bond?

If there is a bond, this will be returned to the tenant, provided there is no damage to the property, when the lease ends.

Which law needs to be considered?

Section 51(2) of the Residential Tenancies Act 1986.

Remember: If the current tenants are on a periodic tenancy, the landlord must give at least 90 days’ written notice to end the tenancy. If the current tenants are on a fixed-term tenancy, the landlord cannot put the property on the market for sale until the tenancy has ended. After the tenancy has ended, they are required to put the property on the market within 90 days.

 

Mortgagee sale

A mortgagee sale is a property sale that takes place when a person can’t pay back the money they owe to a bank. Essentially, landlords may have to sell their rental property to pay off a mortgage. The bank repossesses and sells their property to get back the money it’s owed, becoming landlord to the tenants in the process.

What a mortgagee sale means for tenants

A tenant’s life will not really change after the bank has become the landlord. While the tenant will be informed of the sale and new ownership, other than the fact the tenant will pay their rent to the bank, everything will remain the same. Banks have the same rights and responsibilities as any landlord.

What happens to the bond in case of a mortgagee sale?

The bond stays with Tenancy Services, and the bank replaces the landlord on the bond record. If the previous landlord has been refunded the bond before the bank takes over, the bank will not have a bond to claim if obligations are breached by tenants.

Fixed-term tenancies and special rights during a mortgagee sale

In fixed-term tenancy cases, the bank and the tenant have the right to give notice to end the tenancy as if it were periodic.

FAQ

Should I sell or rent my house?

To rent or sell your home? That is the question! Deciding whether to sell or rent your house is a big decision. Renting your property can bring in considerable passive income not to mention the capital gain that can be made each year especially with Auckland property prices on the rise. But if you want a large sum of cash now then selling may be the right answer for you. Selling, however, is an involved process, which will require you to find a lawyer and a real estate agent, among other things.

When to sell rental property in 2021?

You can sell your rental property as soon as you decide to, as long as you keep in mind that some regulations have changed. For example, for properties acquired on or after 27 March 2021 that are not used as your main home for twelve months or more, you will be required to pay income tax on a proportion of the profit made through the property increasing in value.

Make your choice!

• There are many different reasons why an individual may decide to sell a rental property even if it brings them income.
• You can sell your property even if tenants are still living in it, as long as you inform them in advance and in writing. And if they are on a fixed-term agreement then you will need to get them to agree to break the agreement early.
• It is important to respect your tenants’ rights and discuss convenient times for them to let potential buyers into their home.
• If a property is sold as a mortgagee sale, then the bank becomes the landlord, but this does not change the terms and conditions for current tenants.

If you are thinking about selling a rental property with a tenant, consult with CGPM. The company’s expert Property Managers will make the process hassle-free for you while ensuring you maximise your profits!