When a landlord decides to sell a rental property, it's essential to inform current tenants through a formal notice of intent to sell the property. This notice ensures tenants know about the upcoming sale and understand their rights under local and state laws.
Typically, if a new owner is appointed after a successful sale of the rental property, the former tenants can still rent the property under the new owner with the same terms of the rental agreement unless stated otherwise.
In this article, you will learn more about the “Notice of Intent to Sell,” the FAQs regarding the subject matter, and how a property management company can help.
Is It Alright to Sell a Property Rented to Tenants?
Some landlords often ask whether selling a presently occupied property is okay. Yes, landlords can put a rented property up for sale, but they must follow regulations and recognize tenants' rights before they can do so.
One requirement is to issue tenants a “Notice of Intent to Sell” before listing the rental property. Rules and regulations governing landlords and tenants at the local level may require the former to notify the latter. If the lease provides that a tenant must vacate when the home is sold, the tenant must be given time to make an alternative living arrangement.
In this case, you should hire an experienced real estate agent when selling the rental property. Issues may arise regarding the sale of a rented property, and the marketing strategy for selling a rental home may differ from that of a primary residence.
Moreover, be mindful that the landlord is responsible for property maintenance and repairs until the sale is complete. Never neglect the tenants' needs or skip repair requests, as this can tarnish your reputation and may even affect your property sale.
How to Write a "Notice of Intent to Sell"
A notice of intent to sell a property is typically written in the form of a formal letter. The letter should be delivered to tenants well in advance, ideally at least 90 days before the intended sale date, or according to the notice period required by your local or state laws.
This document should be clear, respectful, and informative. Here's what to include:
- Date of the Notice: The date the notice is written and delivered to the tenant.
- Landlord’s Information: Full legal name, address, phone number, and email of the current property owner or landlord.
- Tenant’s Information: Name(s) of the current tenant(s) and the address of the rental property in question.
- Statement of Intent: A clear declaration that the landlord intends to sell the property.
- Expected Timeline: An approximate timeframe for the sale and any important milestones, such as listing the property or scheduling showings.
- Tenant Rights and Lease Status: Clarify that the tenant’s rights remain intact. In most cases, tenants can continue living in the property until the end of their lease term, even after the property changes ownership—unless the lease allows for early termination or local laws state otherwise.
- Instructions for Property Showings (If applicable): Include details about how and when showings will be conducted, along with any required notice before entry.
- Tenant Responsibilities (If applicable): If tenants are expected to maintain a clean or presentable home during showings, state those expectations clearly.
- Incentives or Relocation Support (If applicable): If you plan to offer any incentives (temporary relocation assistance, rent discounts during the sale process, or help with moving and cleaning, include those details. If your company manages other properties, you may also offer to help tenants transfer to another unit.
- Next Steps: Explain what tenants can expect moving forward and who they should contact with questions or concerns.
- Landlord’s Signature: End the notice with the landlord’s signature and printed name.
Keep the tone professional and courteous. It’s important to show respect for your tenant’s situation while clearly communicating your intent to sell.
What are the Upsides and Downsides of Selling a Rented Property?
Selling a rental property that’s currently occupied comes with both benefits and challenges. Before listing your property, it’s important to understand what you might gain and what potential complications you should know.
Advantages of Selling a Rented Property
There are several advantages to selling a tenant-occupied rental, especially if your buyer is another real estate investor.
Here are some common upsides:
- Potential to sell quickly, especially to other real estate investors
- Strong demand for tenant-occupied single-family and small multifamily rentals
- Steady rental income may make the property more attractive to buyers
- Investors often prefer properties with reliable tenants already in place
- May be able to sell at a higher price due to existing cash flow
Disadvantages of Selling a Rented Property
While there are upsides, selling a tenant-occupied property also has its share of downsides. Here are some of the potential drawbacks:
- Needed repairs or updates can complicate the transaction
- Capital gains tax and depreciation recapture may apply if selling at a profit
- Tenant occupancy may limit showing availability or staging options
- Active leases may deter some buyers (especially owner-occupants)
- Legal requirements and tenant rights can create added complexity
Fortunately, if you plan to reinvest in another rental property, a 1031 tax-deferred exchange could help you defer capital gains taxes.
What are the Tenant’s Rights When a Rental Property is Sold?
A tenant renting the property under a fixed-term lease can stay until the said contract terminates. The new property owner cannot change the terms, especially by charging a higher rent. They should follow the current lease terms if the rental home is sold again.
If the lease terms state that the tenant has to pay every month (not a fixed term), the new owner can charge a higher rent or set new lease terms. The new owner can also evict the renter with or without cause, provided local laws do not prohibit it.
Some state and local laws protect tenants when a rental home is sold. For instance, the landlord must give tenants advance notice when they want to sell the property, and the landlord cannot evict tenants without due cause after a successful property sale.
Ready to Sell Your Rental? JMZ Management Can Help You Do It Right
At JMZ Management, we help property owners throughout Metro Detroit successfully transition their rental properties. Our experienced team can guide you through the process, handle tenant communication, and help you avoid common pitfalls along the way.
Are you thinking about selling your rental property? Let us help you protect your investment and make the transition as smooth as possible.
Contact JMZ Management today to get expert support for your next move.
