When a landlord decides to sell a rental property, they must tell the tenant in writing. Harcourts also recommends that this news should be given to the tenant either in person or on the telephone so that the tenant feels respected and involved in the sales process and has the opportunity to ask any questions they may have.
Selling a property can be stressful, and perhaps even more so when there is little benefit for the tenant due to the uncertainty that a potential sale provides. Communication and negotiation with the tenants are important factors to facilitate a successful sale and reasonable access to the property. Once everyone has agreed to a schedule of access and what type of access is agreed to, it is recommended that this is put in writing and signed by everyone involved.
There are three different scenarios that could apply when a landlord sells a tenanted property.
Scenario 1: Selling a tenanted property and the purchaser takes over as landlord.
The landlord sells the property to a purchaser who continues to rent the property to the existing tenants. The purchaser then takes over the tenancy as the new landlord. The conditions of the tenancy are not affected in this scenario. Note that without vacant possession being part of the unconditional agreement, the purchaser may not be entitled to a pre-settlement inspection.
Scenario 2: Selling a tenanted property where the purchaser wants vacant possession.
The landlord sells the property to a purchaser who wants vacant possession on settlement. This must be a requirement of their unconditional agreement for the sale of the property.
If the current tenants are on a periodic tenancy, the landlord must give at least 90 days’ written notice to end the tenancy so that the property will be vacant on settlement. This may affect the settlement date for the property sale. It is highly recommended that there is a period of vacancy between the tenant vacating and settlement so that a final bond inspection can be carried out and any repairs or cleaning attended to.
If the current tenants are on a fixed-term tenancy that was granted on or after 11 February 2021, the landlord can end the tenancy on the expiry of the fixed term (or later) with 90 days’ written notice if the sale of the property has a requirement that the landlord gives the purchaser vacant possession.
If the fixed-term tenancy was granted before 11 February 2021, the landlord can end the tenancy on the expiry in accordance with the rules that were in place before the February 2021 law changes.
A fixed-term tenancy cannot be ended early by the landlord or tenant unless the tenant agrees in writing to end it. If the tenant doesn’t agree, the property must be sold with the tenant and tenancy in place (see Scenario 1).
Scenario 3: Selling a property once the tenant has vacated:
If a landlord wants to put a rental property on the market without the tenant residing at the property, the landlord must give the appropriate notice to the tenant depending upon what type of tenancy they have, and they are required to put the property on the market within 90 days of the tenancy termination date.
If the current tenants are on a periodic tenancy, the landlord must give at least 90 days’ written notice to end the periodic tenancy.
If the current tenants are on a fixed-term tenancy that was granted on or after 11 February 2021, the landlord can end the tenancy on expiry (or later) with 90 days’ written notice.
If the fixed-term tenancy was granted before 11 February 2021, the landlord can end the tenancy on expiry in accordance with the rules that were in place before the February 2021 law changes.
Marketing of the property must not commence until the tenancy has terminated, if the reason to terminate the tenancy was so that the property could be marketed for sale without the tenant residing at the property.
It is important to note that for any of the above scenarios, a tenant on a periodic tenancy can give the landlord 28 notice to terminate their tenancy if they receive a notice of termination from their landlord.
Access to the property
Landlords must get the tenant’s permission before entering the property to take photos. The tenant can refuse to allow photographs of their personal possessions. Landlords must also get the tenant’s permission to show potential purchasers through the property, as well as professionals like a registered valuer, real estate agent or building expert.
Tenants can’t unreasonably refuse access, but they can set reasonable conditions. They may:
limit access to certain days and times of the week
refuse open homes and auctions at the property.
Tenants can insist that the property be shown to potential purchasers by appointment only. They can also ask for a temporary rent reduction in return for permitting open homes (the landlord does not have to grant this). Tenants have the right to be always present at the home, including during open homes.
Harcourts recommends that landlords consider a temporary rent reduction when selling their property with a current tenant, as an act of goodwill designed to appease the tenants during the sale process, resulting in a higher level of cooperation.
If you still aren’t too sure what is required from you as a landlord when selling a tenanted property, please don’t hesitate to get in touch with one of our knowledgeable investment specialists.