Selling a rental property with a current tenant
Category Rentals
In a challenging economy many property owners may look to sell their rental investment/s for various reasons including the desire to consolidate their property holdings or to minimise any potential risk. There may also be times when an owner needs to raise funds and will look to their rental property investment as speedily as possible.
Ultimately, there is not always time for the property owner to wait until the property is vacant and they may need to get the selling process underway sooner. It is important for rental property owners with a current tenant to understand the law in terms of what they can and cannot do.
According to rental agents from the Seeff Property Group it is important for any rental property investor or landlord to always ensure that they have a watertight agreement which includes provision for a procedure in the event of the sale of the property because legally, the lease always tops the sale.
While a landlord can sell their rental property at any time in terms of South African legislation, tenants do have rights. A landlord cannot just give notice or evict a tenant when there is a current lease agreement. The lease stays in place until its end date.
The first thing the landlord should do is to check the lease agreement. Hopefully, it includes a clause which deals with the procedure to follow in the event that the property is sold. If not, then the law kicks in and the landlord must be aware of the legalities.
The lease agreement takes preference over the sale which means that if the property is sold, the tenant is entitled to remain in the property until the end of the lease.
The landlord should also note that if there is a right of first refusal granted to the tenant in the lease agreement then the landlord must offer the property to the tenant before considering other offers.
The tenant could, however, in terms of the Consumer Protection Act (CPA) decide that they would rather vacate. In such an event, they may terminate the lease by giving 20 business days' notice (approximately one month) in terms of the CPA.
The tenant should be aware that in the event of cancelling the lease in terms of the CPA, the landlord is entitled to reasonable compensation. This is usually around 1-2 months' rent that the tenant would still be liable for.
The landlord may, however, not cancel the lease, and it will have to run to its full conclusion. Should the property be sold during the lease period, then it will transfer to the new owner. The new owner may not cancel the lease prematurely, increase the rent, or change any of the terms of the lease either. It continues as is.
It is often advisable that the property owner waits until the end of the lease and the property is vacant before selling it to reduce the risks associated with selling a tenanted property. That said, there are many buyers who would welcome an existing tenant, especially a good tenant who looks after the property and pays their rent on time.
If there is an option to renew in the lease agreement, then the new owner will be bound by this and must grant that to the tenant.
Author: Gina Meintjes
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