How to Sell Your Rental Property with Tenants
June 1, 2021 - Written by Jamie Palmer, President and Broker of Power Properties
With the Calgary real estate market on fire, the thought of selling your rental property has probably crossed your mind. When selling a rental property there are a few things to consider including the type of lease, when the lease ends, and what kind of tenants you have.
First, you need to determine what type of lease you have with your tenants, because that will determine your next steps:
Types of Leases
Fixed-Term Lease
Has a set start date and a set end date (ex. May 1, 2020 to April 30, 2021)
Must be renewed or renegotiated at the end of the lease term (typically one year).
Month-to-month or Periodic Lease
Continues indefinitely until it is ended by the tenant or owner.
The landlord must give 3 months of notice to terminate the lease for selling purposes
What to do when your property has a fixed-term lease
A fixed term lease supersedes any sales agreement, which means the tenant has a legal right to stay in the property for the duration of the lease, so while you can sell the property at any time, the buyer would not be able to move in until the end of the lease.
“A fixed term lease supersedes any sales agreement, which means the tenant has a legal right to stay in the property for the duration of the lease.”
So timing is very important when selling a property with a fixed-term lease in place. Most buyers do not consider properties beyond a ninety-day possession date. Trying to sell a property with nine months left on the lease is a futile endeavour as the vast majority of buyers are not interested in a nine-month possession.
On the remote chance, a buyer is willing to purchase the property and assume the lease, they must qualify as though they were purchasing an investment property, such qualification will include larger down-payments, higher interest rates, and of course having the income to qualify to purchase an investment property. These are all barriers to selling your property.
What kind of tenant do you have?
It’s important to consider what type of tenant you have. Do you have a messy one, a cooperative one, or one with amazing decor right out of a Restoration Hardware catalog? Answers to those questions will definitely impact your ability to sell the property. Legally, you have the right to show the property to potential buyers with twenty-four hours notice, but if a tenant is not cooperative, all the legal rights in the world do not matter. Additionally, if the tenant’s decor is that of “early college dorm” it may not present your property in the best possible light.
The best timing for selling a tenanted property
Should you be interested in selling your property, the best time to make that decision is 3 - 4 months before the end of your tenant’s fixed-term lease end date. If the tenant has nice decor and is cooperative, you can list the property for sale approximately ninety days before the end of the lease. If the tenant is uncooperative or has less desirable decor, you should wait until they vacate the property and then list the property for sale vacant.
What if you need to sell the property, but you are at the start or middle of a new lease term? Unfortunately, you cannot unilaterally end the lease. You or your Property Management Company can approach the tenant to see if they are willing to move out early, some tenants are cooperative in this regard, others require additional motivation, usually in the form of free rent or cash payments. However, if the tenants are not interested in moving, you are limited in your options and may have to wait until their lease has expired.
Written by Jamie Palmer, President/Broker of Power Properties Ltd.
Jamie Palmer is the President and Broker of Power Properties. He holds a Certified Property Manager (CPM®) designation, the highest designation in Property Management in North America. He earned an Honors degree from the University of Toronto, and he has over two decades of experience in property management.
Power Properties was established in 1980, and is a member of the Canadian Real Estate Association, the Real Estate Institute of Canada, and the Calgary Residential Rental Association. They currently manage over a quarter billion dollars in residential real estate and collect over one million dollars in rent each month.
