[M06/S08] Selling a Home that is Tenant Occupied

Not every home that is sold is one that’s lived in by the owners. You may own a rental property, or you may have a guest unit or apartment on your property that you rent out to help cover the mortgage. If you are in this situation, know that selling a home that is tenant occupied presents you with an additional set of challenges.

For one, having tenants can make it difficult to do showings, as the tenant’s rights must be respected. In California, this means that tenants must be given 24 hours’ notice before any showings of their rented area.

This need to set an appointment a day in advance, at least, will limit the number of showings you’ll get – and remember, fewer showings means fewer offers. Also, tenants can be messy – not all of them, of course, but they can’t be expected to keep their living area “showtime ready” – that’s probably not one of the terms of their lease.

Also, tenants cannot be expected to vacate the property when buyers come around, either for open houses or for individual showings. It’s great if they’re gone, but often they will be on the premises, and they may say unflattering things about the property or the seller. You might want to coach them to say as little as possible to the buyers who come through.

If your tenants are messy or seem greatly inconvenienced during showings, this tends to make buyers uncomfortable and may not stay as long as they otherwise would. The longer buyers stay, the greater attachment they’ll have to a property – so that’s something to keep in mind.

Breaking a Tenant’s Lease

The bottom line is that with most tenant-occupied properties, it may be best to terminate a tenant’s lease. That’s easy if they’re on a month-to-month tenancy, but if they have a year-plus lease with some time left to run, that may be more difficult. Some leases are written with a clause that allows the landlord to break the lease in the event that they decide to sell. Unfortunately, this clause is not present in the standard C.A.R. lease agreement used by many property managers in California.

In some cases, you may need to buy out the tenant’s lease (that is, pay them to terminate the lease and vacate the home before the lease ends). In certain circumstances you can try to terminate the lease for cause, for example if the lease specifies that no smoking is allowed on the premises and you find that the tenants have in fact been smoking there – but terminating for cause is easier said than done. If you have the time to wait, your best option may be simply to wait until the lease expires before you market the property.

An exception to this is for multi-family investment/income property, where buyers are not looking to live in the home, and would appreciate a “turnkey” rental operation with good tenants already in place.

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