How to sell a tenanted property

The benefits of selling your property while tenanted

Selling a tenanted property is likely to be best for the tenants – they get to stay in their home for longer and may be able to continue their tenancy with a new owner.

Retaining the tenants may make the property more attractive to someone buying a rental property – it shows it’s a viable investment, and they don’t need to spend time finding new tenants.  Buyers who are looking for their own home will benefit from seeing a furnished house and can have a better idea of what can fit where.

The advantage to you as the vendor is that your rental income continues throughout the sale period.

The benefits of selling a vacant property

On the other hand, if your tenants have left, this makes it easier for you to complete any repairs or renovations before the sale.

It will be easier to keep the property tidy for open homes and viewings, and it will be easier to arrange these. The sale process can be faster because you won’t need to consult with tenants about photos, access to the property and viewings.

Things to consider if you decide to sell a tenanted property

If you’re selling a tenanted property, clear, timely communication is critical.

The sale process is likely to be stressful to your tenant, especially if there’s any doubt about whether they can stay at the property after the sale. Remember that your tenant has a tenancy agreement that gives them the right to live in the house. You can help make the process less stressful by making sure everyone knows what's happening at every step.

You might consider reducing the rent during the sale period to recognise the inconvenience.  A good relationship with your tenant will be helpful later when you discuss access to the property for photography and viewings.

It’s essential to let your tenant know at the beginning of the process, so they are aware of their rights and responsibilities – you must advise them in writing. Consider delivering the letter to your tenant in person so you can talk about the sale and access to the property.

You and your real estate agent, if you have one, need permission from the tenant to access the house for photography, valuation, a building inspection, open homes and viewings. You also need permission from the tenant before publishing marketing that includes any photos of their possessions. When you have agreed to times and dates for access, it’s important to put the schedule in writing and sign it together with the tenant and real estate agent.

Your tenants can’t unreasonably refuse access, but they can set conditions about access to the property. They can limit access to specific times and days, and they can ask to be present at open homes – it is also within their rights to refuse open homes at the property.

When the property has been sold, you must tell the tenant the name of the new owner and when they will take over the property. You must also give the new owner a copy of the tenancy agreement.

Different rules apply when a rented property is sold by mortgagee sale. Read more at Tenancy Services(external link).

What happens if the new owner wants the tenant to stay?

If the buyer wants the tenant to stay, the agreement for sale and purchase should specify this. The new owner, or their property management company, becomes the landlord.

If the tenant is staying and the buyer requests a pre-settlement inspection, all parties, including the tenant must first agree to the inspection.

You can collect rent until settlement day. If your tenant has paid rent in advance, you will need to pass this on to the buyer.

If Tenancy Services hold the bond, you and the new owner must complete and return the Tenancy Services Change of landlord or agent(external link) form. If you hold the bond and pass it on to the new owner, you will not be able to make any claim on the property after settlement.

What happens if the new owner wants vacant possession?

Periodic tenancy: If the buyer doesn’t want the tenant to stay on and wants them to leave before settlement, it is your responsibility to give your tenant at least 90 days’ written notice to end the periodic tenancy so the house will be empty for the buyer. This may affect the settlement date for the property sale.

Fixed-term lease: If settlement occurs during the term of the lease, the property must be sold with the tenancy and tenants in place. The buyer then becomes the new landlord for the rest of the fixed-term. You may be able to sell the property empty if the tenant agrees, in writing, to end the fixed-term early.

If the fixed-term tenancy was granted on or after 11 February 2021, you can end the tenancy on expiry (or later) with 90 days’ written notice, if the sale of the property has a requirement that the house is empty for the buyer.

Tenancy Services has more information about ending a fixed-term early here(external link).

Pre-settlement inspection

If the tenancy ends before or on settlement day, the buyer has the right to a pre-settlement inspection. The tenant must agree to the inspection and you must give them reasonable notice.

Selling a property can be stressful for all parties. The best approach is excellent communication with your tenant and an agreed plan that works for both of you. It’s likely you both want the same thing – a smooth process and clarity for your tenants about their home.

Thanks to our friends at Tenancy Services(external link) for their help with this article. Tenancy Services has more information about selling a tenanted property here(external link).

You can also read more here(external link) (external link)at settled.govt.nz.