Selling a rental property with a tenant in residence - how to balance the interests of owners and tenants

Selling a house with a tenant in residence can be a complex situation for a property manager. Managing the needs of the property owner, the selling agent and the tenant's rights requires a balancing act to ensure compliance with the Residential Tenancies and Rooming Accommodation Act 2008 (the Act).

The Residential Tenancies Authority (RTA) encourages property managers/owners to plan ahead and consider how a property will be sold to prevent disputes between parties and acts of non-compliance. The property manager/owner must ensure the tenant has quiet enjoyment of their rental property during the selling process.

Before a lease is offered to a tenant, it is important to understand the needs and intentions of the owner. If an owner intends to sell the property while a lease is in place, the property manager/selling agent has a responsibility to advise the owner that a fixed-term tenancy agreement has priority over a sale of a property. The lease must be honoured if the property is sold.

If the property is to be sold with vacant possession, a tenancy can only be ended for the sale of a property:

• if there is a fixed term lease, at the end of the agreement by giving two months' notice to the tenant; or
• at any time during a periodic lease, by giving two months' notice to the tenant.

If a property is to be sold with vacant possession and a tenant is leaving, the sales agent may need to factor the two months' notice period time frame into the term of the contract, so that settlement can occur after the tenant has vacated.

If the property is advertised for sale, or if the property manager/owner or selling agent enters to show the property to a prospective buyer during the first two months of a periodic or fixed-term tenancy agreement, and the tenant was not given written notice of the property owner's intention to sell before entering into the agreement, the tenant can end the agreement by giving a Notice of intention to leave with 2 weeks' notice.

Before the selling process begins and entry to the property can occur, a Notice of Lessor's intention to sell the premises has to be given to the tenant. The secondary (selling) agent must also give a copy of this form to the managing agent. This notification advises the tenant of the intention to sell the property, the details of the agent selling the property and gives the tenant an idea of the proposed selling strategy.

Entry to the property can only occur when an Entry notice is provided to the tenant with a minimum of 24 hours' notice. A secondary agent (selling agent) must show the tenant written evidence of their appointment if asked before entry can take place.

Any proposed entry must occur at a reasonable time and, unless the tenant agrees, must not be on Sundays or public holidays, or any other day before 8am or after 6pm. Penalties apply for unlawful entry. Remember health and safety is always a priority and any Queensland Health directives also need to be followed.

Selling strategies involving open houses and on-site auctions are not allowed under the Act, unless the tenant agrees in writing. No photographs or images showing the tenant's possessions can be used in advertising the premises, unless the tenant agrees in writing. Not following these rules are breaches of the Act and can be subject to prosecution.

The RTA has released fact sheets developed in partnership with REIQ and other stakeholders on the taking of photographs in a rental property. These fact sheets for property managers/owners and tenants provide handy tips for preventing and resolving issues with photography.

Negotiation between all parties for mutually agreeable entry times can make the selling of the property a smoother process for everyone.

Once a property is sold, the fixed-term lease must be honoured. This does not prevent a property owner and tenant negotiating to end a tenancy on mutual terms and potentially the tenant seeking compensation. During a periodic lease, if the purchaser requires vacant possession, the tenant must be given at least four weeks' notice from the signing of the contract of sale.

For a fixed term agreement, an attornment notice (i.e. a letter) must be given to the tenant advising them of:

• the new property owner
• the new owner or their managing agent's contact details
• where to pay rent.

A Change of property manager/owner form is submitted to the RTA for the bond when there has been a change between owners or the managing agents.

The RTA recommends communication and open negotiations during this time. If talking to each other does not help resolve issues, the RTA's free dispute resolution service may be able to provide assistance.

The RTA has more information on entering a rental property or selling a tenanted property, or contact them direct on 1300 366 311.

This article was first published on 9 November 2021 and has been updated to include information on the new tenancy laws.

Read more: The risks of unfair contract terms.

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