Selling a House with Renters: What Property Owners Need to Know
Selling a property with existing tenants presents unique legal challenges for landlords across the United States. Property owners must navigate tenant rights, lease agreements, and state-specific regulations that can significantly impact the sales process and timeline.
Tenant rights vary significantly by state and local jurisdiction, with some areas providing substantial protections that can restrict a property owner's ability to terminate leases or show the property. Always consult local landlord-tenant laws before listing a tenant-occupied property for sale.
Key Considerations
Scenarios
Decisions
Scenarios
Decisions
Scenarios
Decisions
Relevant Documents
Assignment of Leases
A legal document that transfers the landlord's rights and obligations under existing lease agreements to the new property owner, ensuring continuity of the tenancy terms.
Cash for Keys Agreement
A document that formalizes an arrangement where the property owner offers financial incentive to tenants to vacate the property voluntarily before the sale or closing date.
Early Lease Termination Agreement
If the seller and tenants mutually agree to end the lease early before the sale, this document outlines the terms of that agreement, including any compensation or notice periods.
Estoppel Certificate
A document signed by tenants confirming the terms of their lease, current rent amount, security deposit held, and that the landlord is not in default. This provides assurance to potential buyers about the status of existing tenancies.
Notice to Tenants of Intent to Sell
A formal written notice informing tenants of the property owner's intention to sell the property. This document helps establish clear communication and may be required by law in many jurisdictions.
Property Disclosure Statement
A document where the seller discloses known material defects and other important information about the property, including the presence of tenants and the terms of their occupancy.
Real Estate Purchase Agreement
The contract between seller and buyer that should specifically address the existence of tenants, the status of their leases, and how those leases will be handled during and after the sale.
Rent Roll
A document that lists all rental units, current tenants, lease terms, monthly rent amounts, security deposits, and payment histories. This provides potential buyers with a clear picture of the property's rental income.
Security Deposit Transfer Agreement
A document that formalizes the transfer of tenant security deposits from the seller to the buyer, including accounting for all deposits and accrued interest where applicable.
Relevant Laws
State Landlord-Tenant Laws
Each state has its own landlord-tenant laws that govern the rights of tenants when a property is sold. These laws typically require that existing lease agreements must be honored by the new owner, meaning that if tenants have a valid lease, they generally cannot be evicted simply because the property changed hands. Sellers must disclose existing tenancies to potential buyers.
Protecting Tenants at Foreclosure Act (PTFA)
This federal law, which was made permanent in 2018, provides protections for tenants in properties that undergo foreclosure. It requires that tenants receive 90 days' notice before eviction after a foreclosure sale, and if there is an existing lease, the new owner must honor it until the end of the lease term unless they intend to occupy the property as their primary residence.
Fair Housing Act
When selling a property with tenants, landlords must ensure they don't violate fair housing laws by discriminating against protected classes. Actions that appear to target certain tenants for removal before a sale could potentially violate this federal law.
State Notice Requirements
Most states have specific notice requirements for landlords who wish to terminate a month-to-month tenancy or not renew a lease. These notice periods vary by state (typically 30-60 days) and must be followed even when selling a property. Failure to provide proper notice can result in legal complications during the sale process.
Local Rent Control and Just Cause Eviction Ordinances
Many cities and counties have enacted rent control or just cause eviction ordinances that limit a property owner's ability to evict tenants, even when selling the property. In these jurisdictions, the sale of a property is typically not considered a 'just cause' for eviction, and tenants have additional protections against displacement.
Security Deposit Transfer Laws
State laws govern how security deposits must be handled when a property is sold. Generally, the seller must either transfer all security deposits to the new owner or return them to the tenants. The seller remains liable to tenants if deposits are not properly transferred or accounted for during the sale.
Tenant Right of First Refusal
Some states and municipalities have laws giving tenants the right of first refusal when a landlord decides to sell a rental property. This means the landlord must offer tenants the opportunity to purchase the property before selling it to another buyer. These laws are particularly common in properties being converted to condominiums.
Regional Variances
California
San Francisco has some of the strongest tenant protections in the country. The 'Tenant Right to Purchase Act' gives tenants the first right of refusal to purchase a property when the owner decides to sell. Additionally, just-cause eviction protections mean that a new owner cannot evict tenants simply because they purchased the property. Ellis Act evictions are possible but require significant notice periods (up to one year for elderly or disabled tenants) and relocation payments that can exceed $20,000 per tenant.
Los Angeles has rent control ordinances that apply to properties built before October 1978. When selling a tenant-occupied property, the new owner cannot evict tenants in rent-controlled units just to sell the property vacant. The city's Tenant Anti-Harassment Ordinance also provides additional protections against landlords who might try to force tenants out before a sale. Relocation assistance is required for no-fault evictions, which can range from $8,500 to $21,200 depending on tenant circumstances.
New York
New York City has complex rent regulation systems including rent control and rent stabilization. The Housing Stability and Tenant Protection Act of 2019 significantly strengthened tenant protections. When selling a property with rent-regulated tenants, these tenants have strong succession rights and eviction protections. Condo and co-op conversions require specific procedures including offering existing tenants the opportunity to purchase their units, often at preferential rates. Evicting tenants to sell a vacant property is extremely difficult.
Albany adopted its own rent stabilization laws following the 2019 state reforms. Properties with six or more units built before 1974 may be subject to these regulations. When selling tenant-occupied properties, landlords must disclose existing leases to potential buyers, and these leases remain binding on new owners. The Good Cause Eviction law provides that tenants cannot be evicted except for specific reasons, and a property sale is not considered good cause.
Florida
Miami-Dade County has fewer tenant protections compared to cities like San Francisco or New York. However, the county does require 60 days' notice (rather than the state minimum of 15 days) before terminating month-to-month tenancies. When selling a property with tenants, the existing lease transfers to the new owner, but once the lease expires, tenants can be asked to vacate with proper notice. The county's Fair Housing and Public Accommodations Ordinance provides some additional protections against discrimination.
Orlando passed a rent stabilization ordinance in 2022, though it faced legal challenges. When selling tenant-occupied properties, landlords must honor existing leases, but Florida law generally favors property owners. With proper notice (typically 15-60 days depending on tenancy type), tenants can be required to vacate once their lease term ends. Orlando requires landlords to provide tenants with a Notice of Rights and Responsibilities document at the beginning of tenancy.
Texas
Austin requires 60 days' notice for non-renewal of leases in buildings with five or more units. When selling a property with tenants, the new owner must honor existing leases but can choose not to renew once they expire. Austin's Tenant Relocation Assistance program may apply in certain redevelopment situations, requiring developers to provide relocation assistance to displaced tenants. The city also has source of income protection ordinances, though state law limits some tenant protections.
Dallas enacted tenant protections including a right to cure lease violations before eviction and minimum AC/heating requirements. When selling tenant-occupied properties, existing leases transfer to the new owner. Texas law generally favors landlords, allowing for relatively straightforward non-renewals with proper notice (typically 30 days for month-to-month tenancies). Dallas has a Fair Housing Ordinance that provides protections beyond federal law, including source of income protection in certain circumstances.
Washington
Seattle has extensive tenant protections including the Tenant Relocation Assistance Ordinance, which requires landlords to provide relocation assistance (around $4,000) to low-income tenants displaced by property sales or substantial rehabilitation. The city's Just Cause Eviction Ordinance means that landlords need a specific legal reason to terminate a tenancy, and selling a property is not considered just cause. Seattle also has a First-in-Time rule requiring landlords to accept the first qualified applicant, which affects new owners who want to re-rent units.
Tacoma requires 60 days' notice for no-cause evictions and lease non-renewals. The Rental Housing Code mandates that landlords provide tenants with information about their rights. When selling a property with tenants, the new owner must honor existing leases and provide relocation assistance in certain circumstances, such as when substantial rehabilitation will displace tenants. Tacoma's tenant protections are significant but not as extensive as Seattle's.
Frequently Asked Questions
Yes, you can sell a house with tenants living in it. However, the sale is typically subject to the existing lease agreement, meaning the new owner must honor the terms of the current lease until it expires. This is known as 'selling with tenants in possession' or 'selling subject to lease.'
While federal law doesn't specifically require landlords to notify tenants of a sale, many state and local laws do. Even if not legally required in your jurisdiction, it's considered best practice to inform your tenants about your intention to sell. This helps maintain a good relationship and can facilitate showings. Check your specific state and local laws for notification requirements.
Generally, having a desire to sell your property is not legal grounds for evicting tenants who are in the middle of a lease term and in good standing (paying rent on time and following lease terms). For tenants with a fixed-term lease, you typically must wait until the lease expires. Month-to-month tenants can usually be given notice to vacate according to state law (typically 30-60 days), but some jurisdictions have 'just cause' eviction requirements that may prevent this.
Most states require landlords to give reasonable notice (typically 24-48 hours) before entering the property for showings. You cannot excessively disturb your tenants' right to quiet enjoyment of the property. Consider working out a showing schedule with your tenants, offering incentives for cooperation (like reduced rent during the selling period), and ensuring the property is shown at reasonable hours.
When selling a property with tenants, the security deposit should be transferred to the new owner at closing. This transfer should be documented in your sale agreement. You should provide the new owner with detailed records of the deposits and notify tenants in writing about the transfer of their security deposit to the new owner, including the new owner's contact information.
Yes, offering tenants a 'cash for keys' agreement is legal and sometimes an effective strategy. This involves paying tenants an agreed-upon sum to vacate the property before their lease ends. The agreement should be in writing and specify the move-out date, amount to be paid, and condition the property must be left in. This can be particularly useful if you believe the property will sell for a higher price without tenants.
No, selling a house does not automatically terminate existing lease agreements. The lease is attached to the property, not the owner, so the new owner generally must honor the existing lease terms until the lease expires. The principle of 'the lease follows the land' applies in most U.S. jurisdictions, meaning tenant rights survive the sale of the property.
Some lease agreements contain an 'early termination' or 'sale clause' that specifically allows the landlord to end the lease early if the property is sold. Without such a clause, you generally cannot terminate a fixed-term lease early just to sell the property. Check your lease agreement for any such provisions, but be aware that some jurisdictions may restrict the enforceability of these clauses.
Selling a rental property has significant tax implications, including potential capital gains taxes, depreciation recapture, and the possibility of using a 1031 exchange to defer taxes. If you've lived in the property for at least 2 of the last 5 years before selling, you may qualify for a capital gains exclusion. It's highly recommended to consult with a tax professional who specializes in real estate transactions before selling a rental property.
You should disclose the existence of tenants and provide copies of all lease agreements to potential buyers. Be transparent about rent payment history, any ongoing disputes, maintenance issues, and whether tenants wish to stay after the sale. While respecting tenant privacy, you should also disclose information that might affect the buyer's decision, such as pending evictions or known lease violations. Many states have specific disclosure requirements for landlord-tenant situations in property sales.