What Happens When a Tenanted Rental Property is Sold?
Over the last 12 months, we have seen a significant increase in clients concerned about their landlord’s plans to sell. This reflects a broader market trend, as recent interest rate hikes have driven many investors to offload their properties. It has also highlighted a few common misconceptions many tenants have about what a sales campaign means for them.
To help address this, we want to take a closer look at the process for selling a tenanted rental property. As part of this, we will explore exactly what both the old and new owners can and can’t do. We will also share our advice for tenants attempting to navigate this tricky situation.
The sales process
The process for selling a tenanted rental property is quite similar to any other property – just with a few extra considerations. The major phases of this process are:
1. Notification: Before the sales campaign can really begin, the landlord needs to let their tenant know they plan to sell. Exact requirements vary from State to State, but generally notice periods are:
Existing tenants must be advised at least 14 days before the property is first advertised for sale.
New tenants must be advised before they sign the lease – in most States, failing to do this will mean the tenant can terminate the lease without incurring break lease fees.
2. Preparation for sale: Before listing, marketing materials are prepared, which usually includes taking professional photographs and/or videos of the property. The landlord is allowed to organise these, but must abide by the following rules:
They can only access the property once in the 28 days before it is first advertised to take pictures/video.
While there is no set minimum period, landlords must give “reasonable notice” of the scheduled photography/videography session. During this time, tenants are allowed to remove any belongings they do not want photographed or videoed.
Tenants must give their written approval for any of their belongings to appear in advertising materials.
Tenants must also give their permission to install a “For Sale” sign in front of the property. This does not apply to strata properties, where sales boards can be placed in common areas.
3. Inspections: Prospective buyers have the opportunity to view the property. The rules around inspections vary from state to state, but are generally:
Inspection times should be agreed with the tenant – however, if times cannot be agreed, the landlord can schedule up to two inspections per week.
Minimum periods vary but tenants usually need to be given written notice 24 – 48 hours before a planned inspection.
Unless agreed with the tenant, inspections cannot be scheduled on Sundays or Public Holidays, or between 6pm and 8am.
The tenant is responsible for ensuring the property is kept in a “reasonable state of cleanliness” throughout the sales campaign.
It is up to the tenant whether they are present at the property during inspections.
In Victoria, landlords must give tenants compensation of $30 or half a day’s rent (whichever is more) for each inspection.
4. Negotiation: Interested buyers put in offers and the sales agent works on current owner’s behalf to agree the best possible terms. The exact process for this will depend on the method of sale, but tenants will generally have minimal involvement. If the property is to be sold by auction, tenants must give their permission for this to be held on site – except for strata properties, where auctions can be held in common areas.
5. Settlement: After finances are arranged and the required legal documents are finalised, the successful buyer takes ownership of the property. The tenant must be provided their new landlord’s details and advised of any changes to property management and rent payment arrangements.
Do you have to move out?
While many tenants assume that their landlord’s sale plans will mean they have to move out, this isn’t always the case. In fact, depending on the structure of your lease, the property sale may have minimal impact on your tenancy terms.
For example, if your lease is fixed-term, the new owner will have to honour this agreement. This means you should be able to continue living in the property until at least the end of your current lease term. That said, there are a few important caveats here:
While you cannot be asked to leave because of the property sale, your lease can still be terminated for other reasons. This includes failing to pay rent in full and on time, and failing to sufficiently maintain the property. As such, it’s crucial you continue to meet all the requirements of your lease, regardless of who owns the property.
It is possible to end a fixed-term lease early if both the landlord and tenant agree to the termination. Acknowledging this, depending on their plans, your landlord may offer you a financial incentive to agree to move out early. While this entirely legal, you should not feel compelled to take the offer if you do not want to.
If your lease is periodic (month-to-month), selling the property is a valid reason for a landlord to issue a notice to vacate. As such, you may be asked to move out before, during, or after the sale process. However, standard notice periods apply, which vary between 28 and 90 days, depending on the state.
Is your landlord planning to sell?
It can be quite upsetting to hear that the rental property you call home is going to be sold. However, there are a few simple things you can do to make the process less stressful and disruptive:
Consider requesting compensation: As a tenant, you can ask to have your rent reduced for the duration of the sales campaign. This is usually done in acknowledgment of the inconvenience caused by inspections, and the additional preparation work required. While your landlord isn’t legally required to provide any compensation, many do it as sign of good faith.
Be proactive with inspection scheduling: Your landlord is entitled to conduct up to two inspections per week with prospective buyers. Working with them on the scheduling of these allows you to make sure the timing suits you. To make managing inspections even easier, you could also suggest two set times each week that will work for you.
Make sure the property is presentable: While preparing for inspections can be annoying, it is worth putting in the effort to present the property well. A property that is clean and tidy will generally sell quicker, meaning fewer inspections to manage around. The property may also be bought by another investor, so you want to show that you are a great tenant.
Carefully consider any financial incentive to move: While the money might be tempting, you need to weigh up whether any compensation being offered is really worth it. As part of this, consider how much it will cost to move – remembering that, in addition to moving costs, you will need to pay for end of lease cleaning, and the bond and the first month’s rent at your new place. Also, check the current state of the rental market – can you still get a comparable place with the same budget?
For more information on dealing with your landlord’s plans to sell, including tips on securing a new home, contact Your Home Hunter.