Selling a property that is currently tenanted can be a complex process, and it’s crucial to navigate it correctly to prevent costly delays and complications. In this guide, we’ll discuss how you can avoid issues related to tenancy law changes and ensure a smooth property sale.

The Pitfall

In a recent case, a landlord agreed to sell his property while it was under a fixed-term tenancy set to conclude in early February. However, unaware of recent changes to residential tenancy law, the landlord encountered an unexpected hurdle. Fixed-term tenancies no longer automatically end on the appointed date, and landlords must provide tenants with 90 days’ notice to terminate the tenancy, which transitions to a periodic tenancy.

The property couldn’t be sold until it was vacant, causing the landlord to incur substantial late-settlement fees and the buyer’s additional storage and accommodation costs while waiting to move in.

Understanding the Recent Changes

As of 11 February 2021, landlords must follow the same notice and grounds for termination as a periodic tenancy when ending a fixed-term tenancy. The Residential Tenancies Act 1986 specifies acceptable grounds for termination, which must be mentioned in the notice provided to tenants. When selling a tenanted property, the primary reasons for termination are:

(a) The property will be listed for sale within 90 days after the notice’s termination date. (b) The owner is obligated under an unconditional sale agreement to provide vacant possession.

In both cases, landlords must provide tenants with a minimum of 90 days’ notice. For fixed-term tenancies, the notice termination date should align with the fixed term’s end date, except in exceptional circumstances where both parties agree to early termination.

Notify Your Tenants Early

To avoid potential delays and penalties, landlords should inform tenants about their property‘s sale plans as soon as possible. Even if it means a temporary gap in rental income, consider issuing the termination notice before entering any sale agreement. This proactive approach can help you sidestep costly consequences and attract purchasers who don’t need to wait an additional 90 days for settlement.

Marketing a Tenanted Property

While marketing a tenanted property, you’ll need your tenants’ permission to access the property for various activities, such as taking photos, conducting viewings, open houses, inspections, and valuations. Additionally, any marketing material featuring the tenant’s belongings must be approved by the tenant before publication.

Selling with Vacant Possession

If your aim is to attract buyers who intend to reside in the property rather than rent it out, consider selling it with “vacant possession,” ensuring the property will be unoccupied at the time of settlement.

Seek Legal Advice

Before selling a property, especially one with tenants, it’s essential to consult with a legal professional to navigate the process correctly. Legal advice can help you avoid costly penalties and ensure a smooth and successful property sale.