Landlord Wants to Sell Rental While Tenants are In It.
Question
I own a rental home that I wish to list for sale. The lease includes the following clause:
12. INSPECTION OF PREMISES. The Landlord and/or Landlord’s agents shall have the right at all reasonable times during the term of this Agreement and any renewal thereof to enter the Premises for the purpose of inspecting the Premises and all buildings and improvements thereon. And for the purposes of making any repairs, Landlord may deem additions or alterations as appropriate for the preservation of the Premises or the building. Landlord and its agents shall further have the right to exhibit the Premises and to display the usual “for sale,” “for rent” or “vacancy” signs on the Premises at any time within forty-five (45) days before the expiration of this Lease. The right of entry shall likewise exist for the purpose of removing placards, signs, fixtures, alterations or additions, but do not conform to this Agreement or to any restrictions, rules or regulations affecting the Premises.
Does the BOLD section mean I cannot list it for sale until the lease is within the 45 day period of expiration? Also, if I sell the property do I need to negotiate a buy out of the exiting lease with the tenants?
Answer
State laws do not limit and lease agreements usually do not limit the landlord in marketing for sale or leasing a tenant occupied property. However, this particular clause does appear to limit the landlord to within 45 days prior to lease expiration for displaying signs for either selling or leasing. In view of the opening sentence of the clause, one could argue that giving the landlord the right to do so within the 45 days does not eliminate the right to also do so earlier because it does not explicitly forbid doing so. However, contrary to what one sees on TV and in the movies, such technicalities seldom work in real courts.
Even if the words are taken to limit signs, the words do not limit listing of the property. In fact, the words do not even prohibit showing of the property to potential tenants or buyers at any time, whether before or within the 45 day period. Most leases have a specific clause allowing the landlord or his agents to enter the property for a variety of purposes, usually including showing the property to potential tenants or buyers and some states provide that right by statute. Assuming your lease agreement has such a clause, you should compare this clause with the BOLD one to see if it clarifies or conflicts in a way that might create ambiguity and possibly render the clause unenforceable.
I think that the most certain way to resolve the issue might be to encourage cooperation by providing some incentive to the tenant. Perhaps, unbeknownst to you, the tenant would be interested in terminating his lease early and early termination could be traded for modification of the clause. Otherwise, payment of some nominal amount of money might encourage cooperation.
Trying to market an occupied rental unit is usually not a good idea. Tenants can refuse to fully cooperate, leading to refusal to allow entry when an agent and client show up at an agreed upon time. When word gets around, agents will cease marketing the property. A tenant’s serious failure to cooperate can only be resolved by evicting the tenant for default on the lease agreement, something that can take months to accomplish. Furthermore, tenant occupied properties often do not show well and will result in lower offers or none at all.
The best way to market a rental property that will result in the best price with the least hassle is to wait until it is vacant – either because of lease expiration or having done a lease buyout – and not list it until all necessary and/or desired cleaning, repairing, and/or improving has be fully completed.
If you want to retain the right to market a rental while occupied by a tenant, I strongly suggest that you rewrite the clause to more clearly state what you wish it to say in a way that is unambiguous and not open to interpretation.
Unless the lease agreement has a specific clause requiring a buyout or otherwise terminating an existing lease (not often seen), leases go with the property. That is, both the tenant and the new owner must abide by all terms of the lease agreement. When there is significant time left on the existing lease, this can mean that the property will not be of interest to any potential buyer who wants to personally occupy the property.
Finally, you don’t mention the state where your rental is located. There are only about a dozen states that don’t have a statute requiring a minimum advance notice period for entry to a rental unit, typically being from 24 or 48 hours. Accordingly, it might not be legal for your lease to provide an “unnoticed entry” for any reason except for an emergency.