What applies when purchasing a rented house where one or more tenants live?
It is not unusual for a house that you cannot sell, or perhaps do not want to sell, to be rented out. The leases are usually designed as fixed-term rental agreements and often include a clause that the tenant must vacate if the property is sold.
It is possible to agree in the lease that a lease agreement shall be time-limited. However, this requires that the landlord can demonstrate that the time limitation is reasonable and justified in the landlord's circumstances. The landlord's intention to sell the property when the lease agreement expires may be a reasonable reason, but is not necessarily so.
A fixed-term rental agreement ends without notice when the agreement expires. The tenant is obliged to vacate the rental property when the agreement expires. However, there is an exception: if the tenant, with the landlord's knowledge, nevertheless continues to live in the apartment for more than 1 month after the agreement expires, and without the landlord having encouraged the tenant to move, the rental agreement continues as if it were not fixed-term. In that case, it will be much more difficult to terminate the rental agreement. It may therefore be a good idea for the landlord to send the tenant a letter a few months before the rental agreement expires, in which the landlord points out that the rental agreement will soon end.
A clause stating that the tenant must vacate the property in the event that the property is sold is, on the other hand, invalid, and the tenant can choose to disregard it. The landlord can only terminate the lease agreement when the time limit expires, or if one of the conditions listed in the Tenancy Act is met. If the landlord wants to get rid of a tenant because he has sold the property, this can only happen by a voluntary agreement with the tenant to vacate. Here, the landlord must be particularly aware that the landlord may not offer the tenant payment to vacate.
When selling a property where one or more tenants live, the buyer takes over the role of landlord from the day of takeover. The tenant has rented the apartment and can basically not care who owns the apartment. The rental agreement continues on unchanged terms. The tenant must of course be notified of the change of ownership and that the rent must be paid to the new owner in the future. The rights that the tenant had towards the seller, the tenant also has towards the buyer. The buyer must therefore accept the terms stated in the rental agreement, regardless of whether the buyer has been aware of these, including the obligation to repay the tenant's deposit upon vacating.
As a buyer, you should also be aware that renting out properties, even if it is only a single room, is considered commercial, and the landlord is by definition considered to be the stronger party. Being a landlord entails a wide range of duties that you as a buyer should actively deal with if you want to handle the risks it entails.
Regarding the viewing of the apartment, the starting point is that the landlord only has access to the apartment if the circumstances require it. A legal reason for the landlord to gain access to the apartment may, for example, be in connection with a sale of the apartment, e.g. for the preparation of reports, sales presentations and viewing. However, the landlord may not take photos of the rental property that show the tenant's belongings or furnishings without the tenant's consent.
Access to the rental property that is not urgent usually requires a prior notice of either 6 weeks or 3 months depending on the situation.
When the landlord wants access to the apartment, it is important that reasonable consideration is given to the tenant. In this connection, the rules on showing the apartment when the apartment is to be re-let can be taken as a starting point, but not the rule on how often the landlord has the right to access. According to these rules, it is the tenant who determines the time of showing. The landlord cannot therefore require the tenant to give access to the apartment while the tenant is at work or during the weekend. The tenant can also demand to be notified of when the apartment is to be shown in good time so that the tenant can prepare accordingly.
As a general rule, there is no limit to how many times you can show the apartment in connection with a sale. However, an analogy to the rules for showings when re-letting would mean that there is an upper limit of one showing every other weekday – and probably fewer since it is not the tenant who has taken the initiative for the property to be sold.
If the tenant refuses to allow access to the apartment, the landlord can gain access to the apartment with the help of the bailiff. In addition, the landlord can choose to terminate the rental agreement, because in that case the tenant has breached the rental agreement.
It is irrelevant whether the landlord shows the apartment himself or has a broker do it. However, the tenant may require that either the landlord or the broker be present during the showing if the tenant is not present in the apartment and can/wants to conduct the showing himself.
Standard purchase agreements for private homes state that the property is sold free of leasehold interests. This means that the seller guarantees that no one lives in the property for rent.
If a tenant lives in the property, it is very important for the seller to disclose this to avoid liability or the buyer canceling the transaction. Similarly, it is very important for the buyer to know that the purchase is a rented house, as this can significantly limit the buyer's use of the property.
If the tenant has rented a single room in a single-family house where the seller lives, both the seller and the buyer can terminate the rental agreement with one month's notice. These rental agreements rarely cause problems. However, when buying a rented house, the buyer should demand that the seller guarantee that the tenant is out of the house before the takeover date. The buyer can then claim compensation from the seller for any costs associated with evicting the tenant.
If, on the other hand, the tenant has rented the entire property, the situation is completely different. In such a case, the tenant can only terminate the lease with one year's notice, and only if the buyer himself wishes to use the property - which the buyer usually does.
The buyer thus risks that it may be a whole year before he can move into his new property. In addition, there are the additional circumstances that the tenant may object to the termination, which can both drag out the termination through legal proceedings, and it may also end up with the buyer not being able to terminate the tenancy at all if the conditions in Section 171(1)(1) and Section 172 of the Tenancy Act are not all met.
If the buyer has purchased a property with a tenant without knowing it, then there is a defect in the property, and the buyer therefore has the opportunity to assert rights of defect against the seller.
The seller cannot absolve himself from his responsibility in this regard by paying half of a transfer of ownership insurance. The transfer of ownership insurance does not cover this type of defect.
The first option the buyer has against the seller is for the buyer to cancel the purchase and the transaction is reversed. The buyer can demand this if there is a significant defect. This will usually be the case when the buyer has planned to take over the property immediately for use as their own home.
The buyer's other option is to claim compensation from the seller for the loss caused by the rental agreement. The buyer's loss will be the increased expenses that the buyer will have to find another place to live until the tenant has vacated. The ongoing rental income that the buyer will receive from the tenant must be deducted from the loss. For a buyer who wants to take over the property for his own use, compensation will only exceptionally be a satisfactory solution.
If you have not previously dealt with rental, and if you have no plans to do so now, the advice is simple. Do not enter into a purchase of a rented house where tenants live. As a buyer, you must instead demand that the tenants have vacated the property before the purchase agreement is final. You can therefore sign the purchase agreement with the usual legal reservation, but at the same time with the reservation that the tenant must have physically vacated the property by a certain date at the latest, in order for the agreement to be considered concluded.
If you are buying a house where a tenant lives, you should use a real estate lawyer who specializes in tenancy law, as it is an area full of traps for the inexperienced. You are always welcome to contact us for a non-binding chat at phone 82828242.
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