Selling Your Property and Terminating a Tenancy Without Violating the Law

August 21, 2008

Selling a property can be challenging even without the complications introduced by tenants. Because tenants can negatively impact the marketability of a house, property owners should think about how they can best deal with tenants when first considering a sale. Generally speaking, owners should create types of tenancies that allow the owner to regain possession of the house when it comes time to place the home on the market.

Month-to-Month Rental Agreement. A month-to-month tenancy is preferred if the owner is contemplating a sale. With a month-to-month tenancy, owners may generally provide tenants with a 30-day notice to terminate the tenancy if at least one of the tenants has occupied the premises for less than one year. A 60-day notice is required for tenants who have occupied the premises for one year or more. If the tenants do not vacate the premises after the expiration of the notice, owners will be required to evict them in order to legally regain possession of the house. However, in rent controlled cities such as San Francisco, Berkeley, and Oakland, the failure of a tenant to vacate the premises at the agreed-upon time may be an insufficient ground for an eviction.

Fixed Term Lease. A fixed term tenancy should not be problematic if the term is soon to expire. As long as the rental agreement does not include a provision allowing for the term of the tenancy to automatically renew, or to become a month-to-month tenancy, or some other periodic tenancy, the tenancy expires at the end of the fixed-term. In that event, the owner is generally not required to provide tenants with a 30-day, 60-day, or any other type of notice to terminate the tenancy or to commence an eviction lawsuit. However, owners who accept rent after the term has expired thereby create a month-to-month tenancy. Similar to month-to-month tenancies, owners may be unable to terminate or evict tenants on this basis in rent controlled cities such as San Francisco, Berkeley and Oakland.

Settlement Agreement. A settlement agreement, also referred to as a buyout or a payout, is where the owner agrees to pay the tenants in exchange for the tenants’ agreement to vacate the premises. A settlement agreement can be advantageous for both owners and tenants. In situations where a fixed-term lease has yet to expire, or in rent controlled cities where tenants cannot be evicted absent a lawful ground (the selling of the house usually does not qualify as a lawful ground), a settlement agreement may be the only method for an owner to regain possession of the house before putting it on the market. However, much care should be taken in broaching settlement discussions with tenants, as there is a risk that tenants may later claim that they vacated the premises under coercion and bring a lawsuit against the owner for wrongful eviction.

30-Day Notice to Tenant once Landlord has Secured a Buyer. In certain limited circumstances, landlords may provide tenants with a 30-day notice to terminate once they enter into a contract to sell the property to a buyer who intends to reside at the premises. Property owners should contact an attorney for more details regarding this procedure.

Keep Your House Vacant to Avoid any Eviction Problems and Bitter Tenants. If you are planning on selling your vacant property anytime soon, the best strategy may be to refrain from renting to any tenants. The main drawback of choosing this strategy is obvious, as the owner will lose rental income. However, there are many potential advantages. Avoiding an eviction may save many dollars in legal fees and costs. You may also avoid the risk of angry tenants destroying your property as payback for evicting them. Having a vacant property will also allow you to make repairs to increase the attractiveness and the value of the property. Lastly, you may be able to obtain a significantly higher sales price for a vacant property than with a tenant-occupied property.

© 2008 Szeto Law Group. These materials do not constitute legal advice and are for general informational purposes only. They may be reproduced for personal use and for non-commercial distribution. All copies must include this copyright statement.
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