Northridge Property Management

Draft an Addendum to the Lease When Selling an Occupied Rental House

4-13-09

When it comes to selling an occupied rental house you should first address the feasibility of marketing the property while the current residents are in possession.  The first step for making this determination is by inspecting the house for cleanliness and showability.  If the residents are not capable or are unwilling to keep the house in reasonably showable condition, then efforts to sell the property should be postponed until possession has been obtained and market preparation of the house has been completed.   If this first test has been passed it is then critical to establish an addendum to the lease with the resident which specifically addresses the following mutual areas of concern:

• The amount of advance notice required prior to a showing.  Local and state laws frequently dictate what is permitted, but by mutual agreement with monetary or other consideration it may be possible to deviate from the norm.  Allowing for merely a four hour advance notice prior to a showing is helpful for marketing a home for sale.  This is a reasonable request of the residents provided incentives are put in place to encourage their cooperation.  Consult your attorney for what may be permitted.

• The expectation of the property’s condition at the time of showing.  If the initial inspection reveals very cluttered and/or dirty conditions in the residence then it is advisable to refrain from proceeding any further in the attempt to sell the property while it is occupied.  Doing so will likely lead to frustration for all involved and may hurt the efforts to get the property sold.  An exception would be if the property must be sold due to an impending foreclosure or due to the immediate need to liquidate the property.  In either of these cases, the owner must be prepared to sell the property at a price below what normal market value would dictate especially if the condition of the property is below normal selling standards.  The addendum must clearly state that the property will be kept clean and tidy during the periods designated for possible showing times.

• Permissible times for showing the property to prospective buyers.  Even when compensation is provided for showing the home the times provided for in the addendum need to be reasonable.

• Monetary or other consideration to compensate the resident for their inconveniences.  The most effective methods for gaining needed critical cooperation of the resident during the sale period are realized by offering a reduction in rent during the marketing period or by agreeing to pay a moving allowance in the event of a sale and subsequent closing or some combination of both.  Structuring the arrangement for motivating the resident to assist in the sale efforts is vital to the success of marketing an occupied rental house.

• Modification of lease term, if any, and possible change in notice requirements for vacating.  Given that a new owner of the property will likely want to occupy it shortly after purchasing, some modification of the term of the lease may be warranted.  Here again monetary consideration for effecting this change in the lease term may be the answer.  Keep in mind that when a resident understands that their lease will not be extended beyond the existing term due to the owners desire to sell the property; the resident may be more open to modifying the term of the lease.  If an agreement regarding the term of the lease cannot be made allowing for a new owner to gain occupancy within 30 to 60 days subsequent to closing then it may be best to postpone the marketing of the sale of the home until such time that it can.  Consult attorney for what may be permissible.

Selling an occupied rental house can be successfully accomplished if you meet the needs and desires of both the resident and the seller. Establishing an agreement (beforehand) for how it is to be handled is the key.

About the Author
Robert Massey Jr., is the president and owner of Robert Massey Company, a rental property management and residential property sales company based in Louisville, KY. Robert, Jr. also founded RentalHouses.com, a leading national internet listing service for advertising rental houses.  He is an industry leader and authority in property management and online-based services in the industry, writes articles and speaks regularly to property managers and agents across the country about beneficial services and upcoming trends in property management.

By: Rob Massey, Jr., CPM
published in the NARPM’s Residential Resource

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