Can You Sell a Home If the Tenant Breaks The Lease Early?
Leases are binding contracts that are tied to a particular property. The party who is leasing is the tenant. A tenant has the right to the quiet enjoyment of the property, which means they are entitled to live and use the property as they see fit, subject to any restrictions that might be part of the lease contract. If you sell a property that has tenants on it, it is your duty to notify a prospective buyer about the existence of the lease and its terms and conditions. Selling a property does not negate a tenant's rights to live in the property. Likewise, if a tenant breaks their lease, it is the seller's responsibility to notify the prospective buyer.
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Selling a House With a Tenant
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It is OK to sell a house with a tenant living in your property as long as you notify the buyer about it. You should provide a copy of the lease and payment history of the existing tenant. If a tenant breaks a lease with you, you should notify the prospective buyer immediately. This is part of the seller's duty to disclose all material facts regarding the property he is selling. Usually, any deposit the tenant may have put down when she started the lease belongs to the owner or seller of the home.
Remedies to a Seller if a Tenant Breaks a Lease
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Since a lease is usually written for a specific time period and a specific dollar amount, the owner has the right to try and collect on the unpaid portion of the lease that is still due. For example, if the lease was for one year and the tenant breaks the lease after six months, the owner or seller can try and collect the unpaid balance of the lease agreement, which would be for the remaining six months.
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Leasing the Property While in Escrow
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An owner can re-lease a property while it is in escrow. During the escrow period, the seller is still the rightful owner of the property and can lease the property as he sees fit, however, if he does lease the property while in escrow, he must notify the buyer immediately about the terms of the lease. This could substantially affect the buyer's decision and is a material change from the original condition of the property when he buyer decided to purchase the property. If the buyer is using the property as an investment, he may agree to the new tenant lease, however if he is looking to move into the property as a principal residence, a new tenant lease could create a problem.
Considerations
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When selling a property, it’s always best to provide full disclosure to a prospective buyer. Contact your real estate broker about how to provide the prospective buyer about the existing tenant who has broken his lease. The buyer might want to live in the property and view this condition as favorable, but they may also have relied on the tenant’s income when making their purchase decision. For example, if there were two years remaining on a lease, the tenant broke the lease after one year, and escrow was to close within a month; the prospective buyer might want the remaining compensation due on the lease as a condition for completing the sale.
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