Selling a rental property
Selling a property can be a stressful event at any time. When the property is rented, everyone should understand their rights and responsibilities.
When a rental property is being put on the market for sale, it can be stressful for both landlords and tenants. Landlords sell their properties for many reasons; it is important for them to respect that it is the tenants’ current home.
The process can be less stressful when landlords and tenants understand their rights and responsibilities throughout the sale process.
What happens to a tenancy when a property is sold?
There are 3 different scenarios that could apply when a landlord sells a property that is tenanted.
Scenario 1: Selling a tenanted property where the buyer will take over as the new landlord
The landlord sells the property to a buyer who wants to continue renting to the existing tenants. The buyer takes over the tenancy as the new landlord.
The landlord details on the tenancy agreement need to be updated, as well as the details on the bond record held by Tenancy Services (if a bond is charged).
Change of landlord
Contact details should be exchanged between the new landlord and tenants.
The terms and conditions in the tenancy agreement are not affected by the sale. This includes rules around rent increases for the tenancy.
Scenario 2: Selling the property where the buyer wants a vacant property
The landlord sells the property to a buyer who wants the property to be vacant as a requirement in the sale and purchase agreement that has gone unconditional.
If the tenants are on a periodic tenancy, the landlord must give at least 90 days’ written notice to end the periodic tenancy so that the property is vacant for the new owner. The 90 days’ notice may affect the settlement date of the sale.
If the tenants are on a fixed-term tenancy that started before 11 February 2021, the landlord can end the tenancy on expiry (or later) in accordance with the rules that were in place before the February 2021 law changes.
If the tenants are on a fixed-term tenancy that started on or after 11 February 2021, the landlord can end the tenancy on or after the expiry with at least 90 days’ written notice with stating the buyer specified vacant possession as a requirement in the unconditional sale of the property. A fixed-term tenancy cannot be ended early by the landlord or tenant, unless the tenant agrees in writing to end it. If the tenant doesn’t agree to ending the fixed-term tenancy before expiry, the landlord may choose to negotiate a later settlement date of the sale, or the property must be sold with the tenancy in place (see scenario 1).
Scenario 3: Selling a property where the landlord wants a vacant property for marketing
The landlord wants to market the property for sale without the tenancy in place:
- If the tenants are on a periodic tenancy, the landlord must give at least 90 days’ written notice to end the periodic tenancy to market the property for sale without a tenancy. Once the tenancy has ended, the landlord must put the property on the market within 90 days.
- If the tenants are on a fixed-term tenancy that was started before 11 February 2021, the landlord can end the tenancy on expiry in accordance with the rules that were in place before the February 2021 law changes.
- If the tenants are on a fixed-term tenancy that was started on or after 11 February 2021, the landlord can end the tenancy on or after expiry with 90 days’ written notice to put the property on the market. The landlord may make preparation for the sale (such as a real estate agent carrying out an appraisal or taking photos) if the tenant gives permission. Once the tenancy has ended, the landlord must put the property on the market within 90 days.
There have been recent Tenancy Tribunal decisions indicating that it may be acceptable to market the property before the tenancy has ended when using section 51(2)(a) of the Residential Tenancies Act 1986. A landlord could consider seeking their own independent legal advice based on their circumstances before giving notice under this new termination reason.
Different rules apply when a rented property is being sold by mortgagee sale.
Landlords must let tenants know they’re selling
If a landlord puts the property on the market, they must tell the tenant in writing. They could also choose to let the tenant know before they put it on the market. A tenant may not react well to a real estate agent arriving unexpectedly on their doorstep.
Landlords should consider delivering the letter to the tenant in person so it can be discussed face to face. This is also a good time to talk about accessing the property for any preparations that need to take place.
Notice templates can be found at 'Giving notice to end a tenancy'.
Access to the property
Landlords must get the tenant's permission before entering the house to take photos. The tenant can refuse to allow photographs of their personal possessions.
Landlords must also get the tenant's permission to show potential buyers through the house, as well as professionals like a registered valuer, real estate agent or building expert.
Tenants can’t unreasonably refuse access, but they can set reasonable conditions. They may:
- limit access to certain days and times of the week
- refuse open homes and auctions at the property.
Tenants can insist that the property be shown to potential buyers by appointment only. They can also ask for a temporary rent reduction in return for permitting open homes (the landlord does not have to grant this). Tenants have the right to be present at the home at all times, including during open homes.
Communication and negotiation are important. Once everyone has agreed to a schedule of access, put it in writing and make sure it’s signed by everyone involved.
Once the sale has taken place
The landlord must tell the tenant who the new owner is and when they’ll take over. 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 to pay the rent (e.g. the new bank account number).
The old landlord’s interest in the bond will pass to the new landlord. This means that the old landlord can no longer claim any bond, unless they do so before the date of settlement (or date of possession, if this is earlier). Landlords should seek independent advice to make sure any claim to the bond will not affect the sale agreement.
If Tenancy Services holds the bond, both the old and new landlords must send in a completed change of landlord/agent form.
