If you’re a landlord-turned-seller and you’re planning on listing your house for sale, there are a few things you need to consider to avoid having a nightmarish experience when selling a tenanted property. First of all, tenants have rights, and you should totally respect their wellbeing. After all, this is a tenant who (hopefully) paid you their monthly rent on time, took care of your property, and helped you build equity.
It is understandable that the time will come when you need to sell your tenanted house. What is the proper way to handle the sale of your property when it is tenanted? What procedures should you follow to ensure a successful sale? And what do you tell your tenant so that they can be prepared to transition to another home should the need arise?
First Things First
Make sure you communicate your intention to sell your property to your tenant. Open communication and laying out expectations will minimize stress, hassle and aggravation later on. If you have a great tenant, the least you can do is let them know of your plan so that they can prepare for their move if necessary.
Two scenarios can occur when you sell your property. The first is that the buyer wants to move into the house and use it as their own personal residence. The second is an investor may buy the house and assume your tenant.
Either possibility is fine, as long as you communicate this to your tenant. There are steps involved with the sale of your tenanted property depending on which of these two scenarios occur, so make sure the first thing you do is open up your line of communication with your tenant.
As long as your tenant isn’t on a term contract (meaning they’re currently on a month-to-month rental arrangement), you are allowed to list and market your property to potential buyers. If your tenant still has time remaining on a term contract, you will still be able to list your property for sale, but the remaining time of the contract must be respected and the tenant has every right to stay.
When listing and marketing a tenanted property, your tenant’s living conditions will undoubtedly be interrupted with showing appointments. You should let your tenant know that buyers may schedule an appointment to look at the property. Ideally, they should keep the place clean and tidy especially before showing appointments.
By law, you must provide 24 hours notice to your tenant in order to allow for showings. Appointments are usually set by a buyer’s agent, sent through to your listing agent’s real estate office, who then contacts your tenant to confirm the appointment. Your tenant may approve or reject the appointment request.
What To Do When Tenants Constantly Refuse Appointments
If it’s becoming impossible to get a buyer to see your property because your tenant is refusing appointments constantly, and if your agent has done as much as they can to ameliorate the situation, you should seek the assistance of a lawyer or paralegal to determine what steps you can take to move forward. By law, a tenant can not hinder or obstruct the sale of a property, even though they’re still renting the place.
It will be difficult as a seller/landlord to get a non-cooperative tenant to allow appointments, but if you have no choice and you’ve listed your property for sale with a tenant, you will need to take action in order to allow showings to potential buyers.
A Buyer Is Interested… and They Want to Move In
Once your receive an offer from a prospective buyer and they want to move in, your real estate agent needs to follow proper procedure to notify the tenant of this situation. There is a form that must be completed by you as the landlord (with the assistance of your real estate agent) to notify your tenant of the buyer’s intention to move in — implying that your tenant will need to seek alternative living arrangements.
The Landlord and Tenant Board prescribe the use of form N12, also known as a “Notice to End your Tenancy Because the Landlord, a Purchaser or a Family Member Requires the Rental Unit.” On this form, you will provide the tenant’s information, your information, the address of the rental property which you are selling, and the reason why you are evicting the tenant.
When selling a property to a buyer who is looking to move into the house, you will complete “Reason 2” stating you have signed an Agreement of Purchase and Sale and that the purchaser, or their immediate family member, intends to move into the property.
The termination date of the rental must be at least 60 days after you give notice to your tenant, and the terminate date must be on the last day of the rental period.
For example, let’s say it’s January 21, 2020. You’re giving the N12 notice to your tenant. Your tenant pays rent on the first of each month. The earliest date you can set for termination will be March 31st, 2020. And 60 days effectively starts from February 1, 2020 and onward.
If your tenant is on a fixed term (let’s say they signed a lease beginning July 1st, 2019 and ending June 30th, 2020), the termination date can not be earlier than June 30th, 2020.
Do You Have to Pay the Tenant?
If you are evicting your tenant because you are NOT planning to sell your house, but you or an immediately family member intend to move in, then you must pay them one month’s rent. This compensation DOES NOT apply to a situation where you are selling your property and the buyer is moving in.
However, there are instances where a landlord may compensate the tenant to help them with moving out of the property. This depends on the situation at hand. If you’re thinking of selling your property and feel it would be best marketed if it is vacant, and if your tenant is willing to sign an N11 “Agreement to End the Tenancy” form with compensation from you, this might be a feasible option and mutually beneficial to both parties.
Agreeing to End the Tenancy — Before the Property is Listed
Since we’re on the topic of a mutual agreement between the tenant and landlord to end the tenancy, let’s figure out how this option could be beneficial to both sides.
You and I can agree that listing and marketing a tenanted property can be difficult. Not necessarily because your tenant intends to be difficult (though in some cases it seems tenants are deliberately non-cooperative), rather life happens and it’s tough as a tenant to accommodate showings especially during peak real estate market activity.
So what if you, as the landlord/seller, figure out a monetary incentive that will help your tenant transition from your property (since they may have to move out anyway) and at the same time save your carrying costs and lost selling opportunities?
Some landlords offer their tenants one or a few months of rent, sign an Agreement to End the Tenancy form, and both parties move on happily getting what they want in the process. Let’s say you’re collecting $2000 worth of rent, but you really need to sell your property and the market is very active. If you paid your tenant three months of rent to help them transition to a new place, that $6000 may come back to you multiple times if you are able to effectively list and market your property without hindering showing appointments.
Buyers perceptions will be heightened especially if the property is properly staged and presented. You won’t lose prospective buyers because there is no tenant objecting to showing appointments. You’ll probably benefit more financially by compensating a tenant to move out — so you’ll definitely earn the one to three months rent that you offer (as long as your tenant agrees).
Make sure you and your tenant are both in agreement with the terms of terminating the tenancy, and document this agreement property using the N11 notice form.
What If an Investor Wants to Assume the Tenant?
Let’s talk about the second scenario. Let’s say the potential buyer is an investor who is interested in assuming the tenant. What happens next? The agent representing the buyer/investor needs to stipulate on the Agreement of Purchase and Sale that the buyer is assuming the tenant, ideally stating what the current terms of the rental agreement are, and that the seller/landlord agrees to transfer to the buyer/investor the deposit money currently in their possession, along with the documents establishing the lease.
This situation is ideal for a tenant who wants to continue living in the property, and an investor seeking immediate cash flow (as long as they can make the numbers work). All parties involved in this type of transaction should work with experienced real estate agents, and also seek the guidance of legal professionals to ensure everyone’s interests and rights are protected.
Final Thoughts on Selling a Tenanted Property
Yes… there are many instances when selling a tenanted property can be difficult. Some tenants don’t want to move and they’ll refuse every appointment. At times, it’s the seller/landlord who doesn’t do a proper job communicating to their tenant about the sale of the property.
A real estate sale transaction involving a tenanted property can be handled smoothly as long as all parties communicate, have proper expectations, and understand what they need to do in order to affect a proper sale. If you’re planning to sell your tenanted property, reach out to someone who knows what they’re doing , understands the needs of both you and your tenant, and can provide you with the proper guidance to make sure the transaction goes smoothly.