Selling a Tenant-Occupied Rental Property During Divorce

March 31, 2021

If you and the spouse you’re about to divorce are successful landlords with at least one tenant-occupied rental, you’ll need to give thought to how you go about transitioning that occupied property to a new owner.

If you have a good tenant who pays their market-rate rent on time and has never given you any problems, you might want to frame the sale as an investment opportunity with immediate income potential.

If, however, your tenant constantly causes problems, damages your structure, or violates the lease, you may want to proceed with an eviction and sell the property once it’s vacant.

The type of rental agreement you and your tenant entered into will affect your next moves.

If your tenant has a month-to-month agreement, you can probably safely move forward with a 60-day notice to vacate.

If your tenant has a fixed-term lease, you have a few options:

Wait until the lease expires, then don’t renew
Terminate the lease (if the tenant has violated its terms)
Transfer the lease to the new owner
Negotiate a “cash for keys” agreement with your tenant
Sell the property to your tenant

Does your tenant’s lease have an “Early Termination” clause?

Courtesy to your tenant is important, but sometimes you just need to get out—and that may take precedence over your tenant’s needs. If your spouse becomes a danger to you or your kids, for instance, you may need to execute the lease’s early termination clause, if it has one.

Your tenants’ needs matter

While you’re juggling the drama of navigating a divorce, separating your jointly held assets, and protecting the kids from strife, you may need to manage your tenants’ emotions, too.

You own the house, of course, but if you have a tenant, that house is their home. Any courtesies you extend to your tenants while showing their home to potential buyers can go a long way toward making the process of selling as painless as possible for everyone (including you) and set the new property owner up for a better relationship with their new tenants.

The first thing you need to do is be honest with your tenants about the fact that you need to sell the house, then do what you can to mitigate inconveniences to them.

A few things you can do to make the process go smoothly for everyone:

Hire a weekly cleaning service to keep the property ship-shape while it’s on the market. This will make showings more successful and prevent your tenant from dealing with the hassle of keeping the place “showplace ready” every single day while the house is on the market.
Help the tenant relocate. They may not want to live under a new landlord, or you may want to sell a vacant house. In either case, helping the tenant make the transition to a new home might be the right thing to do (and in some places, it may be the law).
Communicate transparently throughout the process. Keep your tenants in the loop whenever there’s a showing, when an offer has been accepted, and after escrow closes. A few things they’ll need to know:
- What happens next?
- Do they need to move? If so, when?
- Who do they write their next rent check to? Where do they send it?
- What happens to their security deposit?
- Did their lease terms change?

If you’re selling your property as an occupied rental, you’ll need to provide your tenants with information about their new landlord and, if you can arrange it, make an appointment to bring the landlord over to meet their new tenants.

And always be aware of these tenant’s rights.