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Selling a Tenant-Occupied Home

Selling a tenant occupied home

Many homeowners are unaware that Selling a tenant-occupied home is very different than selling a vacant home. Tenanted homes come with tenancy laws, and in British Columbia, the tenancy laws are strict in protecting tenants’ rights. If you or your real estate agent is unaware of these frequently changing laws and you fail to abide by them, you can find yourself losing thousands of dollars.

Picture this.

Jane is interested in selling her tenant-occupied property, so she approaches a real estate agent for help. After inspection, the agent realized that the home was not in the best condition for showing. There was clutter everywhere. Not to mention the damage the property had incurred. This posed a big problem because unkempt homes are turn-offs for prospective buyers. However, the agent reassured Jane that the home would be sold. 

Eventually, they secured a buyer. Jane then issued a two-month notice to the tenant for Landlord’s use. However, the tenant decided to dispute the notice and filed for dispute resolution. The complications of this long process led to the deal falling through, and just like that, Jane lost the buyer and had to start all over.

The best thing to do in a situation like that is to negotiate a mutual agreement with the tenant beforehand to end the tenancy where you can enforce an order of possession. A two-month notice is not a guarantee that the tenant will move out, and with an unpredictable dispute tenancy branch working fervently to protect tenants’ rights, you have to be extremely careful to avoid infringing on tenants’ rights as it can cost you a lot of money. We’ve seen it happen time and time again where sales processes have been mishandled because of a lack of knowledge in tenancy laws.

What other problems come with selling a tenanted home?

Dealing with a problematic tenant or having to market a messy home are only some of the issues you can find yourself dealing with when selling a tenanted property. Other problems you can face include:

The buyer asking for vacant possession

The difference between an offer from a buyer who assumes the tenancy and a buyer who is asking for a vacant possession can be thousands of dollars. Understanding the tenancy laws and their implication on the value of the offer is a must during the negotiation process.

The rent the tenant is paying is below the market

If your home is renting below market, your home is less attractive to an investor purchaser. The tenancies in BC run with the land. Unless the purchaser is planning to move in, the tenancy remains in full effect after the transfer of the title. Buyers and sellers are often tempted to end the tenancy for landlord’s use, but that is a costly mistake.

The tenant refuses to cooperate

Selling a home is extremely difficult if you are having a hard time showing it. The tenant has a legal right to peace and quiet while the tenancy continues. The tenant may refuse entry that’s unreasonable. There is a fine line between doing too many and just enough showings. Maintaining a good relationship with the tenant and being respectful of their privacy are crucial to the sales process.

How can you be sure that your real estate agent won’t mishandle the sale of your tenanted home?

Here are some questions to ask a real estate agent before choosing them to sell your tenanted home:

Can I end the tenancy when I am intending to list my home for sale? 

The correct answer is no. Tenancy laws are very particular about maintaining secure housing for law-abiding tenants, and until there’s an imminent need for a homeowner to take up residency at the home, displacing a well-meaning tenant just isn’t kosher.

Can I end the tenancy prior to the expiry of a fixed-term if the home sells?

No. The tenancy prior to the expiry of the fixed term is protected just like any other fixed-term contract. Unless the tenant agrees in writing to mutually end the tenancy early, their tenancy is protected for the term signed. 

Okay, so when the home sells, is the tenant eligible for any compensation, and if yes,  who pays for it?

The tenant is eligible for compensation of one month’s rent, either in the form of money or a rent-free month. Although it can be negotiated who pays the compensation, generally it is the responsibility of the buyer.

How often can I show my home when tenanted and what kind of notice does the tenant need before showing?

It depends on the personal circumstances of the tenant. You will often hear that you are required to serve a minimum of 24-hour notice which is true but that depends on the delivery method. The 24-hour notice is only sufficient if delivered in person and you need a witness for proof of service.

Is there a difference in closing cost between an offer asking for vacant possession and an offer assuming the tenancy (i.e. keeping the tenant)?

When a buyer asks for vacant possession, they essentially request that you as the presiding landlord end the tenancy at the property, and pass a vacant home to the buyer. You should consider the potential cost and impact on the purchase offer. Even if the buyer pays for the one month’s compensation to the tenant on your behalf as required, depending on the completion date for the sale, your costs might run higher. Once the 2 months notice to end the tenancy for the owner’s use is served to the tenant, the tenant can end the tenancy at any time by serving you with a 10 days notice.

If your real estate agent’s answers to these questions do not reflect that they are aware of the tenancy laws and how to work with them, take that as a clear sign that you need to find another agent, or else you will pay. Quite literally. Do not take it for granted that every real estate agent has the relevant expertise to handle such a delicate situation.