Selling a rental property with a tenant in residence – how to balance the interests of owners and tenants
Selling a house with a tenant in residence can be a complex situation for a property manager. Managing the needs of the property owner and the tenant’s rights requires a balancing act to ensure compliance with the rules of the Residential Tenancies and Rooming Accommodation Act 2008 (the Act).
The Residential Tenancies Authority (RTA) encourages property managers/owners to plan ahead and consider how a property will be sold to prevent disputes between parties and acts of non-compliance. The property manager/owner must ensure the tenant has quiet enjoyment of their rental property during the selling process.
Before a lease is offered to a tenant, it is important to understand the needs and intentions of the owner. If an owner intends to sell the property while a lease is in place, the property manager/secondary (selling) agent has a responsibility to advise the owner that a lease holds precedence over a sale of a property. The lease must then be honoured if the property is sold.
If the property is advertised for sale, or if the property manager/owner enters to show the property to a prospective buyer during the first 2 months of a periodic or fixed-term tenancy agreement, and the tenant was not given written notice of the proposed sale before entering into the agreement, the tenant can end the agreement by giving a Notice of intention to leave with 2 weeks’ notice.
Before the selling process begins and entry to the property can occur, a Notice of lessor’s intention to sell the premises has to be given to the tenant. The secondary (selling) agent must also give a copy of this form to the property manager/owner. This notification advises the tenant of the intention to sell the property, the details of the agent selling the property and gives the tenant an idea of the proposed selling strategy.
Entry to the property can only occur when an Entry notice is provided to the tenant with a minimum of 24 hours’ notice. A secondary agent (selling agent) must show the tenant written evidence of their appointment before entry can take place. Any proposed entry must occur at a reasonable time and, unless the tenant agrees, must not be on Sundays or public holidays, or any other day before 8am or after 6pm. Penalties apply for unlawful entry.
Selling strategies involving open houses and on-site auctions are not allowed under the Act, unless the tenant agrees in writing. No photographs or images showing the tenant’s possessions can be used in advertising the premises, unless the tenant agrees in writing. Not following these rules are breaches of the Act and can be subject to prosecution.
Negotiation between the parties for mutually agreeable entry times can make the selling of the property a smoother process for everyone.
Once a property is sold, the fixed-term lease must be honoured, meaning a Notice to leave the property cannot be sent to the tenant until the end of the lease. During a periodic lease, if the purchaser requires vacant possession, the tenant must be given at least 4 weeks’ notice from the signing of the contract of sale.
An attornment notice (i.e. a letter) must be given to the tenant advising them of:
- the new property owner
- the new owner’s contact details
- where to pay rent.
A Change of property manager/owner form is submitted to the RTA for the bond.