Selling a rental property with a current tenant: what you need to know

If you are renting a property and the owner decides for whatever reason to sell, then you should know that he/she is free to do so, subject to adherence to the important legal principle of ‘huur gaat voor koop’, a Roman-Dutch legal principle which translates to the ‘lease trumps a later sale’.

It often happens that a tenanted property is marketed and sold and the property transferred into the name of the new owner before the lease expires. In this event, the ‘huur gaat voor koop’ principle dictates that the lease precedes the sale.

The tenant is therefore entitled to remain in occupation of the property for the remainder of the lease period. In some instances, this might actually be a selling point for investors looking to invest in a property with a good tenant in occupation.

That means that neither the original nor the new owner will have the right to cancel the lease due to the sale of the property. Only a breach by the tenant can result in the necessary action as prescribed by the lease agreement and law, but it cannot be as a consequence of the sale.

The new property owner will need to continue with the existing lease agreement until the expiry date. The rental may also not be increased outside of the terms of the current rental agreement. It means that the buyer steps into the shoes of your old landlord and the lease continues as it has been and until the expiry date stipulated in the agreement.

It may be that the tenant may want to cancel the lease due to the sale and in such an event, the tenant’s right to cancel their lease will be determined by the lease agreement and law.

In some instances, the lease agreement may already provide the tenant with the option of cancelling the lease in the event of the sale of the property. In such event, there will be no cancellation penalties payable by the tenant.

The lease agreement will also regulate aspects such as ‘for sale’ and ‘sold’ signboards displayed on/at the property as well as access to the property for viewings.

Once the lease period comes to an end, and provided that there is no new lease agreement entered into with the new property owner, then the tenant must vacate the property.

Any rental deposit together with interest must also be transferred by the selling property owner to the new property owner to continue holding it in an interest bearing account for the benefit of the tenant.

When the lease agreement ends, this should then be refunded to the tenant subject to the relevant legal rights and obligations.

It is vital that a new inspection of the property is done with the new owner to ensure that there is agreement on the condition of the property so that there can be no disputes arising at the end of the lease when the rent security deposit needs to be refunded to the tenant.

Finally, if you want to remain in the property as a tenant after your current lease expires, you will need to enter into a new agreement with the new owner and this will contain new terms and possibly a higher monthly rental. The new owner may also require you to top up the security deposit.