Selling a tenant-occupied building to a owner-occupy buyer.
I’m seeing more and more landlords who want to sell a rental property to a non-investor. One of the reasons that this is attractive is it allows the landlord to escape some of the increased risks of being a landlord. It also makes finding a buyer easier, because investors are being extra cautious in purchasing new rentals.
One of the biggest concerns with the sale of a rental property to a non-investor is how to evict the tenant. Even though California law prevents evictions associated with COVID-19 debt, landlords may still perform evictions and file unlawful detainer actions. (Code Civ. Proc., § 1161.) Many landlords, even landlords who are not owed COVID-19 debt, are choosing to sell the property just to avoid the risk. Here, is a general description of the things you may need to know about selling a tenant occupied property to a purchaser who intends to reside in the property.
Note, I am a licensed Real Estate Agent. I do not have a license to practice law. Thus, the information below is available for your consideration. You should consult your attorney to ensure that the information below is properly applied to the facts of your situation.
Landlord must be able to lawfully terminate the lease.
There are three places where a landlord may look to see if he or she can terminate a lease. First, the landlord should check the contract that was signed by the tenant. When such a document exists, the terms agreed to by the tenant and the landlord are highly persuasive and may allow termination in situations where the California Codes would not. Second, the landlord should check Civil Code section 1946. This section defines how to terminate a tenancy when no term has been agreed. Lastly, Civil Code section 1946.1 includes special rules that apply when the tenant has remained on the property for more than 12-months.
Civil Code section 1946.1 includes special rules that apply when the landlord is selling a single family residence to a natural person who intends to reside in the property. The rule applies only when the buyer is a purchaser for value, and the transaction is supervised by a licensed escrow officer or real estate broker. (Civ. Code, § 1946.1, subd. (d).) These special rules do not apply if the landlord had previously attempted to terminate the tenancy by another method found in section 1946.1.
When you send notice to terminate the lease, you may want to specify the source of the rules you use. Specifying whether the termination is pursuant to the terms of the contract, section 1946, or section 1946.1 assists the tenant and the court in quickly identifying the language that supports your right to end the lease agreement.
Note that if your lease is a term of years with a specific end date, then you may not be able to terminate the lease until that date. The language of your contract becomes very important in that instance.
Landlord must give adequate notice to the tenant.
The notice requirements are strict. California law gives landlords access to a fast procedure (compared to other cases, unlawful detainer actions are very fast). In exchange, they hold landlords to a higher standard. Notices must be perfect.
The notice must provide adequate time.
Should you give 30-day notice or 60-day notice? Are you able to provide a shorter notice than that?
The law gives great weight to the terms that tenants and landlords will voluntarily agree to within the terms of the lease. The law does provide certain protections to tenants, so you may not be able to rely on the lease in all circumstances.
Generally speaking, when the tenant has been at the property for less than 12-months, you may provide a 30-day notice. (Civ. Code, § 1946.) When the landlord is selling the property, a 30-day notice may also be appropriate. (Civ. Code, § 1946.1, subd. (d).) In all other cases, the notice must be at least 60-days. (Civ. Code, § 1946.1, subd. (b).)
Caution is your friend. If you can afford to give the tenant 60-day notice, you will satisfy the requirements of both Civil Code sections 1946 and 1946.1. As long as your contract does not require longer notice, then you will likely satisfy the terms of your contract as well.
Adequate notice requires certain language.
The Civil Code section 1946 requires specific language that informs the tenant of a right to retrieve personal property after vacating. Code of Civil Procedure section 1179, et. seq., requires certain language when the landlord requires rent to be paid, but these debt-based notices won’t necessarily apply in situations where you are selling the house and are willing to voluntarily waive any debts.
Notice must conform to the requirements of Code of Civil Procedure section 1179.03.
Code of Civil Procedure applies many rules to the notices provided to tenants. (Code Civ. Proc., § 1179.03.) These rules particularly apply when a tenant owes COVID-19 debts. One way to assert that a tenant does not owe such debts is to waive your claim to those debts in writing. Be careful before waiving your right to collect debts; this is non-revokable and means that regardless the outcome of your home sale, you will never be able to collect the debts that you waived.
What if the tenant claims COVID-19-related financial distress?
When a tenant serves the landlord notice of COVID-19-reated financial distress, the tenant receives the benefit of no longer being in default on associated rent payments. (Code Civ. Proc., § 1179.03, subd. (g).) But, this only makes a difference where that default is a reason for the eviction. When you are evicting because of a change in ownership, this benefit does not help the tenant.
If the tenant does not vacate, the landlord may file an unlawful detainer action.
The COVID-19 Tenant Relief Act added requirements for new forms. The act continues to have effect for the next decade, but the law of unlawful detainers is in flux. President Biden ordered extensions on the unlawful detainer moratoriums.
You should check with your local court clerk and ask for all current forms necessary for filing an unlawful detainer action. You may also find assistance online with professional services that are designed to assist landlords with unlawful detainer actions.