Disclaimer: Laws regarding tenant rights vary by locale. Information in this blog post is meant to be used for educational purposes only. HomeLight always encourages you to consult your own legal advisor.
You may have already decided to sell your rental property in a seller-friendly market or are weighing the possibility of it. However, if your property is occupied, you need to be aware of a tenant’s rights when a house is for sale as they pertain to your area, as well as the specific terms of your lease agreement.
These rights may impact when you as the landlord can schedule house viewings and affect other steps in the process.
“If it’s a strained relationship, the tenant is not going to be overly motivated to assist the owner,” explains Jennifer Wemert, a top Orlando area real estate agent and investment property specialist. “But if it’s been a cordial relationship, it can be great and a tenant can be very useful.”
Selling your rental in 2022? What to know
The financial impacts of an elongated pandemic have placed additional stressors on renters and landlords for the foreseeable future.
Billions of dollars in missed rent and the slow distribution of federal rental assistance are just a few of the factors creating uncertainty. Many landlords aren’t sure if or when they will be reimbursed for significant income losses and whether they can manage to hold onto their properties.
At the same time, real estate prices have surged in response to the recent housing boom, making it an attractive time to sell your rental property and cash out. A recent HomeLight survey found that nearly a quarter of real estate agents nationwide are helping landlords list properties to recoup pandemic losses.
How does the eviction moratorium affect a possible sale?
Although the national eviction moratorium has expired, about half of U.S. renters still have some pandemic protections, according to a CNBC report.
In Connecticut and Virginia, for example, a landlord must apply for federal aid before moving to evict a tenant. Other states including Oregon, Massachusetts, Michigan, Minnesota, and Washington D.C. have put a hold on evictions while a renter’s federal assistance application is pending.
The policies vary and are evolving, so check your official city website for the latest updates and information.
Does a tenant being behind on rent impact a landlord’s ability to sell?
It will likely be difficult to sell a home with an active lease and tenant who is behind on rent, according to Duane Alexander, a real estate investor based in Atlanta, Georgia.
“Landlords are having an extremely hard time right now. And I’m empathetic,” he says. “Buyers do not want to inherit a tenant who isn’t paying. There aren’t too many people who are willing to inherit that kind of situation.”
Alexander recommends that in the case of a tenant not paying, it’s best to wait until the lease term ends. Otherwise, finding a buyer is not going to be easy.
While temporary eviction suspensions in response to the pandemic have allowed tenants to remain in their rental homes during nonpayment, once the lease ends, that no longer applies, according to James R. Rhyne Jr, a real estate attorney in Mount Pleasant, South Carolina.
“With regard to tenants not having to leave their homes, that’s for nonpayment of rent. But when the lease expires, the lease expires,” Rhyne notes. “So if you have a one-year lease, when that lease is over, the renter is no longer contracted. You still would be subject to leaving.”
Will landlords who sell now ever be able to collect back rent owed?
In early 2021, over 20% of landlords reported having lost $20,000 or more in rental income, according to a survey by Avail and Urban Institute. The same survey found that a large portion of landlords aren’t aware that they can apply for assistance on behalf of eligible tenants who are struggling financially and receive direct payment.
Here’s what to know:
- The eviction moratorium temporarily halted evictions but did not erase back rent, according to a report from The New York Times.
- Landlords and renters can apply for assistance to the Emergency Rental Assistance (ERA) program and seek out rental assistance programs in their area to help cover rent, utilities, and other housing costs.
- Consider drafting a repayment agreement with your tenant. The Consumer Financial Protection Bureau (CFPB) provides a resource for how to start a conversation about repayment with your tenant.
- You can encourage your renter to work out an agreement for repayment with you privately to avoid court and protect their credit, the New York Times article suggests.
- If you’ve found a buyer for your property, work with a real estate attorney on your options. One route may be to add an escrow amendment protecting your right to pursue the back rent from the past tenant after the property sells as a precautionary measure.
The type of lease agreement you have with your tenant will in part determine their rights when you sell the property.
Tenants rights with a fixed-term lease
Fixed-term leases are the most common type of lease agreement where a renter agrees to stay and pay rent for an agreed period such as 12 or 18 months.
If you have a fixed-term lease with your tenant, the tenant has the right to remain in the rental home for the duration of the lease whether or not you sell the home, though some exceptions may apply.
Tenant rights with a month-to-month lease
With a month-to-month lease, the agreement between tenant and landlord automatically renews without a defined end date.
Most states require whoever is terminating the month-to-month agreement to provide the other party with at least 30 days notice, whether it be the tenant or landlord.
Tenant rights with a verbal agreement
It’s hard to imagine a scenario where a verbal lease agreement would ever be a wise idea. Without a written contract, any disputes will be one person’s word against the other’s.
However, verbal agreements are used on rare occasions. How well they’ll hold up depends on the state.
In California, for example, a verbal lease is only legally binding if it lasts for less than a year. In the state of Washington, verbal rental agreements are legal but classified as month-to-month tenancies. Check your state policies to understand your tenant’s rights with a verbal lease.
In addition, if you’ve allowed a guest to stay with you for an extended period — prompting them to change their mailing address and provide you with some form of compensation — that guest could be considered a tenant and become entitled to certain tenant rights, depending on state laws.
General tenant rights to know
Tenant rights vary from state to state, but here are 15 common ones to be mindful of.
1. Right to 24-48 hours notice before showings
Coordinating showings can be difficult when you have a tenant occupying the property, but you’ll need to avoid violating their privacy during this step in selling the home.
Beyond being polite and giving them a chance to tidy up the space, a heads-up to enter the property is legally required. Most states require that the tenant be provided with at least 24-48 hours notice.
If not a 24-48 hour window, laws usually stipulate “reasonable notice,” which should be established between tenant and owner before scheduling showings. The notice also applies in the case of appointments for the home inspection, home appraisal, scheduled repair work, or any other visits to the property while it’s on the market.
2. Right to schedule appointments at reasonable hours
In addition to the advance notice, landlords need to be courteous of the appointment timing.
“The landlord must also show the property during ‘reasonable hours,’” explains Benjamin Ross, a real estate investor and landlord in the Dallas-Fort Worth Metroplex. “Showing your home at 10 p.m. is not reasonable, and the landlord could be violating tenant rights.”
There may be some flexibility around what’s deemed “reasonable;” landlords should communicate with tenants to determine which times of day and which days of the week work best for both parties.
“We don’t want to inconvenience tenants in any way, and we set up a time good for them,” is how Alexander, the real estate investor based in Atlanta, Georgia, chooses to handle these types of matters.
3. Right to receive notice to vacate the property
A tenant has the right to know when they need to completely vacate the property. Most of the time, this date is noted on the lease or rental agreement. Even if the property is sold to another owner, the lease term likely stands. In the case of a month-to-month agreement, the owner will still need to provide notice according to state laws. “For example, California is a tenant-friendly state,” Ross explains. “Even under a month to month contract, the landlord must give the tenant 60 days notice.”
4. Right to a relocation fee (where applicable)
“The landlord may also be required to pay a ‘relocation’ fee to the tenant under certain circumstances,” Ross says.
For example, in Seattle, some displaced tenants can apply for relocation assistance if they qualify as low-income. In the event that a tenant qualifies, the landlord must pay half of the assistance. The one-time fee in Seattle can be up to $4,232, and the city pays half of the cost.
Other cities have different policies, with higher assistance amounts based on the size of the property. In Portland, Oregon, a tenant could receive up to $4,500 to relocate from a 3-bedroom unit, and the landlord is required to pay all of it.
Even where no such law or ordinance exists, the landlord and tenant can come to their own relocation arrangement. If an owner would prefer the tenant leave sooner than the lease is up, they can offer some form of compensation for their trouble — especially when the relationship is cordial, says Alexander.
“Just recently, I negotiated to move a tenant out of a property I had a contract with,” Alexander shares. “I got him a storage unit. Sometimes we help with storage, hiring movers, or finding them a Realtor® to assist them — and sometimes even provide short-term rentals or hotels.”
5. Right to accept a lease termination payout
Often called “cash for keys,” owners can offer tenants a payout on the lease if they want them to vacate sooner than their lease stipulates, though the tenant is under no obligation to accept. If the lease doesn’t include an early termination clause, offering money to move out early might be the easiest way to get a tenant to leave the property sooner than they anticipated, and it is legal in all 50 states so long as the correct procedure is followed.
6. Right to occupy the property after it changes hands
The tenant’s agreement is tied to the property and not to the owner. That means if the property sells while occupied, the tenant has the right to live there until the standing lease expires. The new owner has to honor the length of the original lease created between the seller and tenant.
“Just because the home is sold does not mean the lease is not effective,” Alexander adds.
In some rare cases, the owner can evict existing tenants if they or a direct family member plans to occupy the property as a primary residence using an owner move-in (OMI) eviction notice, but some cities have restricted this workaround.
7. Right to leave the property in whatever state they please
For most tenants, there’s not much incentive to tidy up their home before a buyer comes through. If anything, it’s an inconvenience, and many tenants aren’t motivated, which leads to a longer time on the market and more work for the owner.
To sweeten the deal, owners might want to offer tenants an incentive for their assistance. “You could also attach them to the success of the sale,” says Wemert. “So, if I sell for more than $X, I’m willing to give you a bonus to the tenant for cooperating.”
8. Right to the original lease terms
Unless the tenant agrees to renegotiate, they have the right to live on the property with the original terms they signed to. That means if the original lease allowed certain exceptions, the new owner will have to permit them as long as the lease is still in place.
This could include terms such as pets on the property, limits on occupancy, and acceptable payment methods. Depending on the terms of the lease and the tenant’s relationship to the property, this could be a turnoff for some buyers.
9. Right to the security deposit
The tenant has a right to their security deposit when they move out, even if the property has changed hands. This means the seller must notify the tenant of the property’s new owner, as well as how they can collect the deposit when the time comes. However, the new owner would still be able to deduct from the security deposit for any damage to the home attributable to the tenant, if outlined in the original lease agreement.
10. Right to a well-maintained property
Selling a property can be a full-time job, but owners can’t lapse on their duties. Tenants have the right to inhabit a livable property, meaning the utilities need to be working, the property needs to be in good condition, and repairs must be addressed even when the sale takes place.
The owner may count on a tenant to pay rent while the property is on the market, but if the owner neglects duties, the tenant may be able to withhold a portion of the rent, or even break the lease, depending on local rental laws. If an owner fails to maintain the property, a tenant may also be able to file an action in housing court.
11. Right to 30-day window to vacate after the property sells
If the original lease includes a “lease termination due to sale clause,” the landlord has the right to end the lease early if the property sells. However, the tenant typically has 30 days or more to vacate the property in the event of a sale.
12. Right to occupy the property during showings
Tenants are neither legally obligated to leave the property during showings nor required to keep the space clean to the seller’s standards before a showing. This can lead to tension between seller and tenant, though it does not have to.
To keep a situation from escalating, owners can make the process as easy as possible for tenants: offer free cleaning services before showings, or give a gift card to a neighborhood coffee shop for the tenant to visit during appointments. Naturally, the better the relationship is between the owner and the tenant to begin with, the less of a snag this is.
“Showings haven’t presented a problem for me, but again, they can be negotiated,” Alexander says. “I’ve paid for dinners outside of the home if I wanted to show it. But that’s mainly when I’ve dealt with landlords who have uncooperative tenants — I’ve had to sweeten the deal, like paying for dinner.”
13. Right to file suit in small claims court
With the stress of a property sale, a relationship can break down between owner and tenant, and an owner may react with something like a rent hike or by taking away services around the property, such as laundry or security. However, owner retaliation is illegal in almost every state.
If a tenant feels they’ve experienced retaliation from a landlord, they have the right to file a suit in small claims court. A tenant can sue for the return of their deposit, and a few states put no small claims court limit on the amount that a plaintiff can sue for in landlord-tenant security deposit claims.
14. Right to occupy after a foreclosure
If the property is a foreclosure, the tenant usually doesn’t have to leave immediately in the event of a sale. It varies by state, but if tenants have a long-term lease, they may be able to stay until it ends. Alternatively, if the lease is month-to-month, they must receive eviction notice and be given 90 days’ notice before they have to leave.
“It’s not the tenant’s fault that the landlord ran into financial difficulty,” Alexander notes.
15. Right of first refusal to buy the property (where applicable)
Depending on local laws, “the tenant may have the first opportunity to buy the house,” explains Ernie Rafailides, a Maryland licensed attorney with over 30 years of experience.
For example, in Washington, D.C., the Tenant Opportunity to Purchase Act (TOPA) stipulates that landlords must send tenants a letter of intent to sell and also include listing information on the property. The tenant has a certain period of time (for a single unit, 30 days) to decide if they’ll buy the property, and even after the property hits the market, the tenant has the right to match buyers’ offers. The “right of first refusal” process and timeline follows standard guidelines laid out by local laws.
Right of first refusal laws vary city by city and aren’t super common, but if violating this rule does apply to you it can lead to legal recourse from the tenant. Even if not required, presenting the opportunity for the tenant to purchase your home could be beneficial for everyone.
Tenants’ rights when a house goes up for sale
Violating a tenant’s rights in a property sale can lead to legal and financial headaches, not to mention a strained relationship with a tenant. Selling a tenant-occupied property, as such, calls for a certain amount of sensitivity. For you, this might just be an investment property, but for someone else, this place is home.
As you navigate this delicate situation, it will be beneficial to hire a real estate agent experienced in selling tenant-occupied properties who can bring years of experience to the table and help ease communications for everyone involved.
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