It can be easy to see the attraction of selling a tenanted property. You get monthly rent rolling into your bank account right up until the deal goes through – which will likely come in handy paying the mortgage down.

But having tenants in the property can add another level of complication to the process, especially if they are not too happy about the upcoming sale.

Your legal responsibilities when selling a tenanted property

As a property owner, you have the legal right to sell your investment property at any time – even if it falls during a fixed lease period. That said, your tenants also have rights. So you can’t kick them out on a whim and there are certain rules you need to abide by during the sales process.

In Victoria, these include:

  • Giving tenants written notice of your intention to sell the property at least 14 days before the first viewing
  • Paying compensation for each sales inspection that takes place – either half a day’s rent or $30 (whichever is greater)

On top of this, if the tenant is on a fixed lease, it will remain valid until the term is up. So neither you nor the new owner can evict them until the lease expires, unless:

  • The tenant violates the terms of the lease
  • Both parties reach an agreement to end the lease by mutual consent

However, if the lease agreement is periodic, you can evict the tenants on 60 days’ written notice.

Your tenants also have a right to privacy. So while you can snap away to your heart’s content when taking photos of the exterior, you need to get permission to take any inside. The tenant must also give their consent to signage and on-site auctions.

 Inspections when selling a tenanted property

You must make ‘reasonable efforts’ to agree with the tenant on suitable days and times for inspections. If you can’t come to an agreement, you can only show the property a maximum of twice per week, giving the tenant at least 48 hours’ written notice each time.

The tenant has the right to be at the property during the inspection and is only legally required to keep the premises in a ‘reasonably clean condition’.

Pros and cons of selling a property with tenants

 On the plus side, you’ll receive rental income throughout the selling process. Prospective buyers might be more attracted to the property if it’s already tenanted. It also goes some way in proving the property is desirable to tenants.

On the down side, you need to give the tenants plenty of notice before inspections. They might not present the property in the best light, potentially harming the sale price. And, if the buyer wants to live in the property, rather than rent it out, tenants could be seen as an added inconvenience.

Freya Southwell is a property lawyer and Principal of Sutton Laurence King Lawyers.

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