Landlords sometimes decide to sell their properties and whilst this can be for any number of reasons, we must be able to effectively handle this process. The process of selling a tenanted property can often present challenges simply as it involves managing the relationships between the property owner, the tenant and the sales agent.
Although the law is quite clear around how this process must be handled, the biggest contributing factor for issues of problems that arise, stem from a lack of clear communication between the parties involved, who often have competing interests, or a lack of understanding around the obligations as laid out in The Residential Tenancies Act 1986
The best advice we can give (other than communicate, communicate, communicate!) is to firstly consider the tenant and how they may react to this news. After all there is a chance that they may be asked to leave their current home. They may also not be aware of their rights in this situation, so taking the time to properly explain the process can save everyone a lot of hassle in the long run.
Secondly, you should factor in the owner's motivations for selling and how urgently this needs to happen. This can help in deciding the best plan moving forward as how to approach the tenant and assess if any tenant incentives may be needed; this may well ensure the tenant does not try to prevent a successful outcome for the landlord whose goal is to sell the property.
And finally, we recommend that you implement a ‘showing agreement’ that is agreed upon by all parties to confirm the time and frequency of all future viewings and any conditions that may be associated with this. Having this agreement in place provides everyone involved with clear guidelines and expectations around what is going to happen and greatly reduces the risk for issues to occur.
When do we first tell the tenant?
The Act dictates that the landlord must inform any tenant in writing as soon as a property comes up for sale - and most certainly before any advertising begins!
Section 47 - Landlord to give notice to tenant of intention to sell
- (1) If, at any time after entering into a tenancy agreement, the landlord puts the premises on the market for the purposes of sale or other disposition, the landlord shall forthwith give written notice of that fact to the tenant.
- (2) When a landlord is offering residential premises as available for letting, the landlord shall inform prospective tenants if the premises are on the market for the purposes of sale or other disposition.
It is also a good idea to try to have the tenant sign a ‘showing agreement’ which clearly outlines the dates and times a sales agent would like to show people through the property. As these times are agreed upon and signed off by all parties, there is no ‘notice’ required for each agreed showing.
If used, a ‘showing agreement’ needs to be signed by the landlord, tenant and countersigned by the sales agent. It will clearly outline dates, times and condition for the sales agent to show people through the property.
If the sales agent breaches the showing agreement, the tenant can actually sue the landlord for a breach of their peace, privacy and comfort. If this occurs, the landlord may then sue the sales agent to recover any money ordered to be paid by the landlord.
Tip: If you have a feeling that the tenant may object or react negatively to the idea of a showing agreement, ask the landlord if they are willing to provide some form of monetary payment per viewing or per week that is payable to the tenant until the property is sold. This can encourage the tenant to keep the property well presented and also allow a greater chance of unobstructed access for the sales agent and their prospective buyers.
Can we take photos of the property that may include the tenant's possessions?
If the sales agent wishes to take photos of the property then you must obviously gain the permission of the tenant before entering the house. The tenant can however refuse to allow the landlord (or their real estate agent) to take and use photographs of their personal possessions.
Again, communication here is key, and if you are able to arrange some form of incentive for the tenants in order for their cooperation, it can make the whole process that much easier.
What if a tenant tries to deny access to the property for viewings?
Tenants cannot unreasonably refuse access to the property for the purpose of viewings, however they are within their rights to set reasonable conditions, for example:
- Access limited to certain times of day and days of the week
- Refuse open homes and auctions on site
- Ask to be present during open homes
Tenants are within their rights to not agree to open homes and can instead insist the property is shown by appointment only.
In a situation where a tenant is flat out refusing to allow access or may become agitated, hostile or possibly even pose a risk to yourself, the sales agent or the prospective buyers, the only other option is to lodge with the Tenancy Tribunal who will ultimately dictate when and how often the tenant must allow access.
Tip: In order to prevent a situation like the above from happening it is a good idea to try and plan ahead and arrange suggested viewing times with the sales agent before you even approach the tenant. This way you can clearly outline what is going to happen and how often. Sometimes the objections from a tenant arise simply from an assumption that there will be viewings and disturbances happening all the time. A viewing agreement and subsequent financial incentive as mentioned earlier can also help ensure you are gaining the access that you need, in order to result in a successful sale.
The property has sold and the new owner wants vacant possession, what next?
Firstly, vacant possession can only occur if the tenant is in a periodic tenancy, and not a fixed term tenancy situation, with the latter providing full rights to the tenants to stay in the property until the completion of the lease, unless they agree otherwise.
Where a periodic tenancy is in place and the owner agrees to sell with vacant possession, you should inform your tenants as soon as possible and ideally when you first let them know the property is going on the market.
Tenants have the right to give 21 days’ notice in writing to terminate the tenancy at any time, however if they remain in the property throughout the sale process then we must provide them with a minimum of 42 days written notice to vacate. This notice can only be served once an unconditional sale and purchase agreement has been signed, or the unconditional date passes, effectively securing the sale.
The property has sold and the new owner wants the tenants to stay, what next?
Once a tenanted property has been sold, the landlord must tell the tenant who the new owner is and when they’ll take over possession. The landlord should also provide the new owner with a copy of the tenancy agreement.
Once a new owner takes possession of the property, they must tell the tenant:
- - their name
- - their contact details and an address for service
- - how the tenant is to pay the rent (for example, the new bank account number).
Once the property has been sold, the original landlord’s interest in the bond will pass to the new landlord. This means that the original landlord can no longer claim any bond, unless they do so before the date of settlement (or date of possession, if this is earlier). However, it is recommended that independent advice is sought to ensure any claim to the bond will not impact on the sale agreement.
If the bond is held by the Ministry of Business, Innovation & Employment, both the original and new landlords must fill in a change of landlord/agent form.
What are the rules around a mortgagee sale of a tenanted property?
There are a number of different circumstances and factors that come into play when considering a mortgagee sale of a tenanted property.
For this reason we advise you approach each situation individually (and with caution) to ensure this is being handled correctly e.g in some situations the bank may end up technically becoming the landlord, or perhaps the ownership structure may change in order for your current landlord to meet their payment obligations. For example: are there caveats on the title preventing its sale?
For more information and advice around this area in particular, please contact our corporate office or call 0800 TENANCY as this will all depend on the specific circumstances relating to that property and landlord.
Important Information - Ending a tenancy in a mortgagee sale situation
With a mortgagee sale, the bank (or new owner who may purchase the property at a mortgagee auction) has special rights for dealing with fixed term tenancies. If a fixed term tenancy is in place, the mortgagee or new owner actually has the right to give notice to end the tenancy as if it were a periodic tenancy.
When the bank takes over, or the house is sold at mortgagee auction, the tenant also has the right to give notice to end the fixed term tenancy as if it were a periodic tenancy.
The main point here is to ensure that everyone involved knows what the other is doing, what they plan to do, and what their rights are. If we can ensure these conditions are met then the chances of issues arising are drastically reduced.