There are times in life when big changes happen all at once.
These changes aren’t always predictable, and in this situation may be asking yourself: “Can I sell my rental property with tenants in it”?
Selling your rental property with tenants is a huge decision, and one that comes with a unique host of challenges and obstacles.
Whether you need the extra cash or just looking to exit the real estate market; the right time to sell a rental property in California may not always line up with your tenant’s lease.
When it comes time to sell a rental property for any reason, the process of listing the home, showing it, and finalizing deals can be arduous even under the best set of circumstances.
The stress this process can cause may seem overwhelming. This is especially true if your California rental property is still occupied by tenants.
For example, in California, a current tenant has many rights that can/will delay or prevent you from giving notice to vacate just because you plan to sell.
These pitfalls can represent weeks or even months of delay in your selling process and should be strategically avoided if possible.
There’s a few questions you should ask yourself before starting the process:
If you’re thinking of selling a house with tenants, these questions and more will need to be understood and answered before work can begin on selling your rental property.
Today we’ll cover this topic in depth.
We’ll explain the relevant laws and regulations to help you through the process as smoothly as possible and avoid any of the mistakes that could cause you to lose income or even the sale of your property.
Stressed about selling your rental?
Selling a rental in California can be stressful especially with uncooperative tenants. If you want to sell without the stress, hassle and headache of listing, Realtors and dealing with Tenants we can help!
Receive a guaranteed all cash offer within 48 hours and close on your home within 7 days. You may be one click away from your next business venture.
What to Know about Lease Agreements and ‘Just Cause’ in California
There are two ways that tenants may rent your property. These are standard fixed-term leases and month-to-month agreements which may or may not be in writing. Regardless of which category you fit into, there are still possible ways to provide notice to vacate and begin the process of selling your rental property if you have a relatively new tenant or can establish just cause.
Fixed Term Lease
Usually around 12 months in length, this contract specifies the start and end date of the tenancy as well as the amount the tenant has to pay and on what schedule (usually monthly).
In California, generally, if you have a tenant occupied property with a valid rental agreement and it has been occupied for more than 12 months, they cannot be removed from the property unless you can establish just cause.
If your tenants lease expires, or if you never signed a rental agreement, California law considers this to be a month-to-month lease which is automatically renewed until either party submits notice of lease termination.
Because of this, you will still need to provide just cause if your tenant has occupied the property legally for longer than 12 months.
Below we will cover just cause and how and why you may need to prove it.
California has some of the most tenant-friendly law anywhere in the country. This is largely due to the just cause requirement for notices to quit a rental property.
You can give notices to vacate which are predicated on some form of just cause. These are fairly straightforward situations where a tenant has violated the lease term in some way.
You can use these violations to establish just cause.
Examples of just cause in which the tenant is at-fault would be:
Keep in mind that, even if an existing tenant has committed actions that might constitute just cause, you may still be required to give the tenant a chance to cure the error, pursuant to paragraph (3) of Section 1161 of the California Code of Civil Procedure.
Even if a tenant hasn’t committed any lease violations, you still may establish just cause to provide notice to vacate.
In California, it’s possible to establish what’s called a no-fault just cause, in which the tenant has not committed any lease violations but still must vacate the property.
Here are a few examples of no-fault just cause:
One Important Note About Just cause: Once you’ve established just cause, you may provide notice to your tenant to move out.
However, if it is a no-fault just cause as described above, you will be required to either waive the final month of rent or provide a one-time relocation assistance payment equal to the amount of one month’s rent. This will not apply if the tenant has to move out due to conditions they caused.
Without just cause, if the tenant has lived in your property for more than 12 months, you may need to review your lease agreement to see if there is any clause which allows for early termination. This will probably cost you but can be an invaluable clause and is worth considering when crafting any lease agreement.
If you’re unable to establish just cause, it may be necessary to wait until the end of the valid lease agreement to ask the tenant to vacate. Use this time to prepare in advance for your sale and ensure you provide notice at least 60 days in advance of the proposed date of termination.
Frequently Asked Questions
Stressed about selling your Rental?
Selling a rental in California can be stressful especially with
uncooperative tenants. If you want to sell without the stress, hassle
and headache of listing, Realtors and dealing with Tenants we can help!
Receive a guaranteed all cash offer within 48 hours and close on your
home within 7 days. You may be one click away from your next business venture.
Can a Landlord Sell a House With a Tenant In California?
You can, but the timing will be very important. Try to time the sale towards the end of the tenant’s lease to ensure a smooth transition to the new landlord.
Alternatively, if the new owner doesn’t plan to remove the tenant, then the existing lease must be respected until the end of the term specified.
This is probably a good thing if the rent is close to or above market value: a real estate investor doesn’t want the hassle of searching for new tenants.
How Long Do Tenants Have to Move Out After A House Is Sold in California?
If the tenant has lived on the property for less than one year and doesn’t have an active lease agreement, they will require a 30-day notice to vacate. If they’re a long term tenant and have lived there for more than one year, you will need to give a proper notice of 60 days.
Can I Still Show My California Property if Tenants are Living in It?
You can. Under California law, oral notice must be given that the rental home is for sale. Then, within 120 days of that oral notice, written notice must be given as well.
Once the written notice has been given, you can show the house 24 hours after notifying the tenant of your intent to do so.
When real estate agents enter the home and the tenant is not there, they must leave a notice of their presence in the home (e.g., a business card).
Does the California Covid Eviction Moratorium Prevent Me from Removing a Defaulted Tenant?
You cannot remove a tenant for past-due rent who has applied for emergency assistance through the California COVID-19 Rent Relief Program. Applications for this program are no longer being accepted as of March 31st, 2022. Other types of just cause evictions such as lease violations or withdrawal of the property from the real estate market are still valid.
How to Smooth Over the Sales Process with Your Tenant
Depending on the situation with your existing tenants, this may be the most crucial step to a smooth sales process.
It can be an awkward conversation, but keep in mind that if your tenants have lived on the property for more than 12 months, they’re entitled to just cause protection under California civil code, as described above. This can make it difficult to remove the tenant since just cause is not always readily available.
In these cases, it may be necessary to negotiate with your tenants and try and convince them to leave without forcing it. Here are a few strategies you might employ for this purpose:
Give Tenants Ample Notice of Your Intent to Sell
Waiting until the last moment to notify your tenants that you’re selling the property may cause undue stress and confusion to them. This will likely create an uncooperative Tenant if you, or the prospective buyer, cannot produce just cause to remove the tenant.
So it’s important to respect your tenant’s schedule. You will also need some degree of cooperation from them if you plan to show your rental house to prospective buyers.
Keep in mind that tenants aren’t required to vacate the property while you’re showing it, and a disgruntled tenant is the last thing you want around people who are just trying to shop for a home.
On the other hand, notifying them well in advance (at least 120 days) will show them respect by giving them time to plan to move. Showing good-faith behavior like this will make it easier for the tenant to be flexible to your needs, and hopefully more willing to cooperate with you during your sales process.
Don’t Assume Your Month-to-Month Renter Has No Legal Protection
Don’t assume that you can easily remove someone just because they have an expired lease agreement or if you never signed one to begin with.
Even a month-to-month tenant is entitled to just cause protection under California law if they have legally occupied the property for more than 12 months. These rights are something you will need to navigate around. If your tenant has just cause protection, you will likely be better served by being civil and respectful about your intentions.
Be Ready to Negotiate
The law in California makes it likely that the tenant will have a fairly significant amount of leverage when it comes to vacating the property.
A tenant with an active lease agreement can’t be removed at all without just cause, for example, even by the new owner. This can hurt or help your sales process and add confusion to a situation with a lot of moving parts.
Infographic from americanexpress.com
Because of this, you should come to the tenant ready to negotiate. You will likely need to offer some form of concession like cash or a rent waiver.
Look at this as part of the deal when selling a house: the tenant, just like your buyer, has certain leverage and rights that must be respected. This doesn’t mean the interactions need to be hostile, but don’t go into the negotiation expecting to make demands that you can’t actually make.
Consider brushing up on some negotiation skills before opening the conversation:
Here are some concessions you could suggest to your tenant that may make them more willing to move:
Use the Law as a Last Resort
The law might help you but going directly to the legal route is one way to alienate the tenant and ensure they will never be willing to cooperate with you. On top of this, the law may not be as on your side as you expect it to be.
California has pretty strict tenant protection laws including the thorough just cause requirement. Instead, you may be better off going directly to the tenant and stating your intentions.
It’s best to inform tenants of your intent to sell and give them plenty of time to prepare for a move. Remember to be empathetic. You’re going through a major change by selling your property, but you’re also asking them to uproot their lives on your schedule.
You absolutely have the right to sell your property, but don’t forget the people involved in the equation. As the old saying goes: you’ll catch more flies with honey than vinegar.
If you do have a nightmare tenant who is unwilling to leave or negotiate despite your best efforts, it may be time to pursue legal action or hire an attorney who specializes in landlord-tenant laws. Just ensure you’ve exhausted all non-legal options because there really is no turning back after you get the law involved.
How to Deal with a Bad Tenant
If your tenants are nothing short of aggravating, you might want to sell them with the house. While SoCal Home Buyers buys tenant occupied rental properties, other investors in your area may not.
Not only will you want to get rid of them quickly, but you’ll also want to get rid of them peacefully. Bad tenants can cause a whole host of additional problems, often avoided by finding a compromise if you want a smooth transition.
1. Take the Right Attitude
You catch more flies with honey than you do with vinegar. The flies in this case are your bad tenants, and you’ll need to treat them with kid gloves.
You might feel tempted to go on a rampage and tell them you’ve had it, but don’t give in. You’ll need to walk a fine line, and the only thing you can kill them with is kindness during this process.
If you let loose, you’ll have to worry about them retaliating. As the saying goes, never back a wild animal into a corner. You don’t want them to damage your property or take their anger out on you. Find the right balance between polite and firm.
2. Inspect Your Property
Before you announce to your tenants that you’re looking to get them out of there, you need to check the property. Check your appliances and inventory the things on the property that belong to you. Check walls and floors for scuffs and dents. Make sure nothing is broken.
Take photos, in case you need them later. If your tenants get angry and damage anything, or leave your rental a mess, you’ll have photo evidence. Knowing that you inspected may be enough to prevent any acts of vengeance. Your tenants will probably want their deposits back. Some won’t care, and those are the tenants you need to watch out for.
3. Look For Signs of Lease Violations
Lease violations are the easiest way to evict someone. Think about stipulations in your lease about illegal drug use, or guests that stay too long. You want to find every violation that you can to prepare the strongest case.
If there’s unsavory activity going on that isn’t specified within your lease, you may have your hands tied in that department. If the activity is illegal, that becomes another can of worms. You cannot blackmail your tenants, but you can alert the authorities.
If you only have suspicions, your tenants will probably be more compliant if they’re trying to hide something. They’ll do their best to avoid having police serve them notices or assist in the eviction process.
4. Have The Big Discussion
Once you know what you can evict them for, it’s time to sit them down and have the talk. The key to making this is a successful discussion is the tactic you take, which is partially why monitoring your attitude during the process is so important.
You’ll want to be sympathetic, calm, and kind when speaking with your tenants but with a firmness that shows you’re not a pushover. Many bad tenants that can sense this will often exploit it to their advantage.
You can jump for joy and break out the champagne once things are over, but don’t channel your anger into the discussion.
You’ll need to outline the grounds for eviction, and try to come up with a compromise if possible. You may not have all the time in the world to get them out of there, but your tenants will probably be more compliant if they can collaborate with you on their exit strategy.
If you find that your best efforts to create a peaceful resolution to the situation are being prolonged by tenants that are taking advantage of you, you still aren’t out of options.
When selling to an investor for example, they can often assist in the eviction process or buying the house with them, to evict them at a later date to simply make the process easier for you.
It’s Not All Bad: The Benefits of a Satisfied Tenant
Keep in mind also that not all tenants are a negative for the sales process. If you have a tenant who pays rent on time and isn’t a nuisance, this may actually increase the value of your property for a real estate investor looking to build their own portfolio.
A Satisfied Tenant is Likely to:
Leverage the opportunity cost of finding a new tenant to negotiate a higher sale price for your occupied property. Investors don’t want to waste time and effort finding a new tenant, and the prospect of earning rental income immediately may make them willing to pay a little extra.
When it comes to showing the property with a tenant, giving them plenty of notice will make it easier for them to present a clean and well-decorated home. More importantly, it will be easier for them to plan on being outside the house on that day and time.
In the worst case, if they can’t leave while the home is being shown, the last thing you want is for them to be disgruntled on top of it. A rude tenant can completely disrupt the process of showing the property and, legally, there is nothing you can really do about it without just cause.
Steps to Follow When Selling a Rental Property with a Tenant in California
If you were worried you may not be able to sell your property just because it’s occupied by tenants, hopefully you can see it’s possible.
As a recap, here are the steps you should take when selling your home with tenants still in it:
1. Give Proper Legal Notice
When you’ve decided to sell your property for any reason, start by notifying your tenant orally, followed by writing within 120 days. During these 120 days, you have the right to show the property after 24 hours oral notice, or 6 days of mailed notice.
2. Inform the Tenant if They Have to Leave
If you know the prospective buyer will be making it their primary residence, you should inform the tenant immediately so they can make plans to vacate. Other forms of just cause may be curable, and the option to fix those must also be offered before the tenant can be removed.
Legally, you or the new landlord will need to provide 60 days’ notice for a just cause quit notice or 30 days if the tenant has lived there less than one year.
3. Respect Your Tenant and Don’t Assume Their Presence is a Negative
A happy tenant is a benefit to your property, especially if you’re a landlord selling a house to investors looking to make rental income. Even if they will be required to move, treating them with respect and kindness will benefit you as well: a happy tenant is a cooperative tenant and one that has no interest in hindering the sale of your property.
4. From Listing to Closing, Keep Your Tenant Involved
Remember that California has quite friendly tenant laws that you will need to navigate.
The most important part of any amicable relationship is trust. This is also true for your relationship with your tenant. Establishing trust early on in your relationship with your tenant will make it far easier to ask them for favors like moving out on your time frame.
Communicate your intent to sell your house early on in the process. Keep them informed of the time frame and when you plan to show the house. Follow the legal guidelines but don’t use them as your moral compass.
You may be within your rights to list the house for sale without telling them, but someone knocking on the door and asking for a showing is not the way you want your tenant finding out about your intentions. It will quickly break any trust you’ve managed to establish and could lead to them refusing to cooperate.
It’s Still Possible to Sell, Just Know Your Options and Rights
While tenants can potentially complicate your situation, they may also be able to make it easier on you by making room for potential buyers, keeping the home clean and in good condition, and cooperating with your timeline.
If your tenant is going to be required to vacate to complete a sale, you may be required to negotiate with them. Look at this as a cost of doing business. Thanks to California law, tenants have fairly strong rights that you will need to respect and that can be used to get concessions from you. Be ready and prepared to negotiate but realize that your demands may not be enforceable legally.
On the other hand, finding potential buyers could alleviate the stress of worrying about your tenant. Investors are motivated by reliable rental income, and if you have a tenant providing that now then it is in your best interest to keep them happy and reduce their incentive to vacate the property.
While selling a California rental property with tenants living in it does present extra variables that can complicate the situation, it is by no means impossible. It just requires a little more preparation, knowledge of the California Code of Civil Procedure, and willingness to engage respectfully with your tenants.