A tenancy agreement does not necessarily end when the property is sold. A purchaser buys a property subject to any lease agreement that is in place prior to the purchase. If a tenanted property is to be sold while the tenant continues to lease it, the landlord must take steps to ensure that the tenant’s privacy and enjoyment of the property are not compromised during the processing of advertising and displaying the property.
Fixed term agreements
Where a fixed term lease is in place, the landlord cannot make the tenant leave before the end of the lease. However, they can offer the tenant an incentive (such as reduced rent) to agree to end the lease early. If the tenant refuses to end the lease early, the owner must either wait until the end of the lease to sell the property or sell it subject to the lease.
Where a periodic lease is in place, the owner or property manager has to give the tenant a Notice to leave, with at least four weeks’ notice before they have to vacate the property.
What must the landlord do?
If the landlord decides to sell a tenanted property, the landlord must:
- give the tenant notice of their intention to sell, including details of how the property will be marketed;
- obtain written consent from the tenant prior to holding an open-for-inspection or on-site auction and prior to displaying photos of the property in their possession.
- ensure the tenant retains quiet enjoyment of the property while their lease remains on foot.
Offences relating to tenanted property sales
Failure to obtain the tenant’s consent before conducting an open house or an auction on the premises of a tenanted property is an offence, punishable by a maximum fine of 20 penalty units, under Section 204 of the Residential Tenancies and Rooming Accommodation Act 2008.
Section 203 of the act makes it an offence to use photos showing a property in a tenant’s possession in an ad without the tenant’s written consent. This carries a penalty of a maximum fine of 20 penalty units.
Sale within two months of lease
Under Section 307 of the act, where a lease is commenced and the lessor does not give notice to the tenant of their intention to sell the premises and within two months of the start of the lease agreement:
- the premises are advertised for sale; or
- the lessor enters the premises to show them to a prospective buyer
the tenant may give notice of their intention to leave.
Keeping tenants happy
If you want to sell a tenanted property, it’s important to keep the tenants on side. Giving them plenty of notice that the property is going to be sold and communicating openly with them is key. Offer them the option of purchasing the property before it is placed on the market. Ensure you comply with the law concerning notice periods and obtaining consent before displaying ads or holding open-for-inspections.
Consider offering your tenants a financial incentive to present the property nicely at viewings and to stay away during open-for-inspections. Alternately, hire a cleaner to do a thorough clean-up prior to taking photos or holding open-for-inspections.
If it suits you better to sell the property vacant, or if your tenants are unhappy about the property being sold subject to their lease, consider offering them the chance to break the lease. This will allow you to get the property fixed up and to do things that you couldn’t do with the tenants there. If the tenants have a fixed term tenancy, you cannot require them to leave but you can offer them an incentive, such as a month’s free rent.
If you require legal advice or representation in a tenancy matter or in any other legal matter, please contact Go To Court Lawyers.