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Can an investor sell a rental with a tenant in place?
If you are in the situation as a landlord-investor that you want to sell your rental property but you’ve got a tenant in there, I hope that this video is helpful for you as it helps to explore some options.
It depends. That’s the answer. It really depends. We’re going to go through a few questions to help discover in your situation if you can sell. In Utah, options and grounds for early termination are discussed in this code here that’s available on the Utah website. One interesting thing is this code doesn’t discuss specifically the sale of a property. But what it discusses is the options for early termination. Since it does not discuss the sale of a property, then Utah statute is that the lease is a binding agreement and is something that is tied to the property and something that cannot be terminated unless it’s mutually agreed upon. The sale of a property does not terminate the lease unless there is a provision. We’re going to talk about that a little bit.
In most situations, you and the buyers of the property will have to honor the lease. We’ll dive into this a little bit more. Here are four questions to help you determine if your situation allows for the sale of your rental property. And better one, are you selling it as a rental investment? If you are selling it as a rental investment, then sure, you can sell it no problem because that buyer is planning on keeping it as a rental. They will need to abide by the lease, honor the terms of the lease. They can’t change it without the tenant’s consent and they just need to ride that lease out until it’s up for expiration, for renewal, at which time they can renew the lease, they can change the lease, whatever needs to happen. They can even ask the tenants to leave with proper notice.
Number two, is the less expired? Is it month to month or expired? If it is month to month, then you can give notice to the tenant to vacate, or the sale of the property. The new buyer can give them notice or you as a seller can give them notice as well. A month to month lease just follows the month to month statutes in terms of notice given for the sale of a property.
Number three, is the tenant in default? Are they current on their payments? Are they current on their other obligations? Are they in default per the terms of the lease agreement? If they are, there may be reasons that you can terminate that lease, of course going through the proper procedures for doing that, in which case, once the lease is terminated and they vacate the property, then you have the ability to sell that property.
Number four, does the lease have a special provision? Which means, have both the landlord, the owner, the investor, and the tenant signed an agreement in the lease that allows for the termination of the lease agreement with the sale of the property? We’ve seen this. It’s common. But it’s not as common as you might think, so check with your lease agreement that you have in place with the tenant to see if it has a clause. If it does not, then you’re probably going to need to honor that lease through the sale of the property.
What can an investor do that needs to sell the property to an owner-occupant? The first one, which I hope that you really explore and you’ve thought about first, is to talk to your tenant. Your tenant may want to buy the home. In fact, we’ve seen this happen a lot of times where the investor goes to the tenant and says, “Hey, I need to sell the property. I’ve already got a realtor and we’re going to be listing the home,” and the tenant says, “Whoa, whoa, whoa. Hold on. We love this home. We don’t want our kids to move out of the neighborhood, out of the school. We want to buy it. We’re already working with a lender. We can get a pre-approval letter in and start that process.” If that’s the case, it’s a win-win for everybody, right? You may even save on some commissions, which can be helpful.
Discuss early termination. If the tenant doesn’t want to buy it, then discuss early termination options with them. You may be surprised that they may have been wanting to talk to you about terminating early and they were nervous about maybe having to pay some fees. This could be a breath of fresh air for them to have this option. Now if they don’t want to move, maybe offering a settlement, paying moving expenses, a month or two of rent, whatever you need to do depending on your situation to make it worth it for them to agree. Now if they just say, “You know what, I don’t want to move. We don’t want any money. We just want to live here for the rest of our lease,” then wait for the lease to expire. That’s really your third and final option unless some of these other options apply to your situation.
If you have questions with this, feel free to reach out to our time. More than happy to discuss your specific situation and see what options you may have available.