Rules When Selling a Tenanted Property

Rules When Selling a Tenanted Property

18 October 2023

If you’re thinking about selling your investment property but are concerned that you already have tenants occupying it, then don’t worry – This won’t stop you from being able to sell it. But there are some things you need to know before putting it up for sale, and certain rules you need to follow to ensure that the sale goes smoothly.


Understanding the Tenants’ Rights

It’s important to remember that your investment property is your asset and as such you are ultimately free to do with it as you please – Within the framework of the relevant tenancy legislation, of course. Your tenants have rights as well, and you and your selling agent must always observe and respect these rights, ensuring that strict protocols are followed or otherwise things could get messy very quickly.

Understanding the Lease Agreement

What type of lease the tenants are on will for the most part determine how quickly vacant possession can be obtained in the event the property is sold to an owner-occupier purchaser. There are two types of residential lease – Fixed Term and Periodic leases. If your tenant is on a fixed term lease, this means that the lease has a defined start and end date, and the end date will be crucial here – If your tenant is on a long or extended lease which is not due to expire for quite some time, then obtaining vacant possession in the event of a sale will be very difficult. You cannot legally compel your tenant to move out of the property until their lease has expired, so be careful to ensure any contract of sale allows sufficient time to obtain vacant possession if required.

A periodic lease on the other hand is a ‘month-to-month’ lease and has no defined end date. Normally these are not entered into directly, but rather indirectly as the result of a fixed term lease expiring but not being renewed. Periodic leases are ideal if you are trying to sell the property as they allow you to keep the tenant at the property while it is on the market but only require you to give the tenant 2 months notice to vacate in the event of a sale. Be cautious here though – Some landlord insurance policies will refuse to cover you under anything except a fixed term lease, so always check on this before allowing your tenant’s agreement to become periodic.

Required Notices Under the Act

The first thing you will need to do when listing your investment property for sale is to supply the tenant with a Form 10 – Notice of Lessor’s Intention to Sell the Premises. This is the approved form with which written notice is given to the tenant that the property is to be offered for sale. This form needs to include both the tenant’s and the agent’s details, and must be signed by both the selling agent and the rental agent.

Once this has been supplied, there are a number of other forms which will need to be issued as well. For all inspections, either private viewings or “open house” inspections, a Form 9 – Entry Notice needs to be issued a minimum of 24 hours prior to the inspection. If you are planning to take photographs of the property to be used in the advertising campaign, then consent needs to first be obtained in writing from the tenant, as these images will contain at least some of the tenant’s possessions. This is generally done by issuing and executing the REIQ Tenant Consent Form, which is generally regarded as the approved format to obtain this consent. If you are planning to conduct open home viewings on the property, then once again, you and your agent will need to obtain the tenant’s written consent for this to happen. And once again, there is an approved REIQ form for this.

When the property is sold, a call will then need to be made on whether or not a Form 12 – Notice to Vacate will need to be issued to the tenants. This will largely depend on whether the buyer is an investor or owner occupier. In the event that the property is being bought by another investor purchaser, it should be relatively straightforward and normal settlement terms will generally apply, as the tenancy can form part of the purchase. However, if the buyer is wanting to obtain vacant possession, then you will likely need to issue a vacate notice to the tenants.

When doing this, it is very important to observe the rules governing the required notice period. If a tenant is within a fixed term lease, then the following notice periods apply in the event of a sale:

Fixed Term lease End date of lease or end date of 2 month notice period (whichever is later)
Periodic Lease Date 2 months from date notice is given

 

Can a Fixed Term Lease be Ended Early?

A landlord can not legally compel a tenant to end their tenancy early unless a mutual agreement is reached by both parties for early termination of lease. The tenant may agree to vacate the property prior to the end of their lease to accommodate an owner occupier purchaser, but it is essential to remember that they cannot be forced to do so. In some cases, a tenant may agree to vacate early on the basis that they are compensated for the inconvenience and costs associated with moving, but there are no hard and fast rules here and it will come down to what is negotiated between the parties.

As always, please feel free to get in touch for expert advice on anything real estate related.

‘Til next time, ciao 😊

 

Disclaimer: The information is this article is for general information only, it is not intended and should not be considered as either legal or financial advice. The information contained herein should not be relied upon solely and all parties are encouraged to obtain their own independent advice before making any financial decision.
Lee Knutsen

Article by Lee Knutsen

Co-founder & Managing Director of House, Lee Knutsen first entered the real estate industry in 2006 as a residential sales specialist. After more than a decade as a sales agent…

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