Should I tell my prospective tenants that I am planning to sell?

Question

Hello,

I am considering selling my owner-occupied multifamily home as I need to move OOS due to a job change but I am not too sure when I will sell and odds are I may not sell. To quantify there is a 75% chance I will sell and 25% chance I may not sell. I am more inclined towards selling because I find managing from OOS will be a big hassle.

I am also currently vetting prospective tenants to fill in the vacant apartment and already received several applications. I am confused on whether I should upfront tell my prospective tenants that I am planning to sell? How do I script a clause in lease to safely handoff my property and tenants to the new property owner? Appreciate your inputs.

Thanks

Brandon Sturgill · Answer

@Peter Morgan you can't afford to not tell them...It does not matter that this is owner-occupied. I've sold dozens of rental properties with tenants and full disclosure is the only way to go. You have to remember that the uncertainty creates anxiety...which leads to possible irrational behavior...meaning tenants default to self-preservation and will do everything possible to resist change....not saying your tenants will do this, but keeping them informed will make everything run smooth.

HERE is a doc we provide to all tenants of occupied units (specific to my state)

Scott M. · Answer

@Brandon Sturgill is 100% spot on once you decide 100% you are selling.  Do not do the jerk move that a lot of landlords do and try to tell them it is an "insurance inspection" or some other BS because a someone will slip and then you have anxious tenants on your hand.  So, I do agree that once you decide to sell you should of course tell your tenants.  Full disclosure is always the best way to go.

Telling them  you are thinking about selling?  Different story, at least to me and I am sure lots of people will disagree.  No reason to tell them you are thinking of it.  Every reason to tell them you decided.

Joe Splitrock · Answer

You said "odds are I may not sell" but then you say 75% chance you will sell, 25% you will, meaning odds are better you will sell. You do not need to disclose to the tenant that you are selling. If you do, be prepared to answer questions like, "will I be allowed to stay in the property" and "will the new owner increase rent?". Assuming you sign a year lease with the tenant, both of these concerns can be set to rest with the lease. Leases transfer to the new owner, so the tenant would be protected for that term. If you want the tenants cooperation on showing the property, my advice is talk to them about that up front. Tenants are greatly inconvenienced by property showings. I would discourage showings unless the buyer is highly qualified or even has an offer on the property. Another option is compensate your tenant for the showing disruption. Discount their rent for that month to account for the hassle.

Justin Hoggatt · Answer

@Peter Morgan, I personally don’t think you need to tell them. If they rent the place, they still get the unit and they still get to stay even if you do sell it.  From my experience, tenants don’t generally care about the turnover.  Unless, of course, the new owner doesn’t take care of the property. But I don’t think that really matters for right now on prospective tenants.  I think telling tenants that you could possibly sell just creates confusion and worry. I think for the most part tenants understand situations can change and just keep it simple. Also, as far as I know there are no laws that say you need to tell anyone about that and so that “disclosure” isn’t needed.￼  The buildings I have acquired have always been a surprise to tenants and they have always been very nice about it and flexible. The main issues I’ve experienced are with the tenants that don’t like me enforcing the rules and they end up leaving.￼￼

Scott M. · Answer

If you are selling the home with a portion of it tenant occupied then no, there is no reason to tell the tenants.  the new owner will need to abide by the lease.  More than likely, the new owner will want a tenant to stay so that makes it a win win.  If it were to effect the tenants then yes, you should tell them, as I see it it doesn't so no need.  If you want to sell it vacant I would rent it month to month so you both have an out when needed.

Eric James · Answer

You don't have to tell them. But you will probably need to show their apartment to prospective buyers.

Peter Morgan · Answer

Thanks Scott, this was helpful. The reason I asked this question is because my previous tenant was not comfortable to show his apartment while he was occupying citing pandemic as the reason so I had to wait until he moved out to start showing to prospective tenants, I hope that will not be the case when I am selling.

Should I tell my prospective tenants that I am planning to sell?

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