Selling a tenanted property in NSW

Notice of intention to sell

Before the property goes to market you must give the tenant written notice of your intention to sell. The tenant is entitled to 14 days notice, and the period is counted from the day after they receive it rather than the day you send it.

That counting rule matters more than it looks. Notice posted on a Monday is not received that day, and the 14 days do not begin until the day after it arrives. Building in extra time is the difference between a campaign that starts on schedule and one that does not.

There is a separate point worth knowing. If you had already decided to sell before the tenancy agreement was signed and did not disclose it, the tenant may have a right to terminate the agreement early.

Inspections while the property is tenanted

Once notice has been given, the property can be shown to prospective buyers, subject to two limits.

You must give the tenant at least 48 hours notice before each inspection, every time. Inspections are limited to twice in any one week. The tenant is not obliged to agree to more, and pressing for it is both unlawful and counterproductive.

In practice this means open homes are planned into a fixed weekly rhythm rather than arranged on demand. A buyer who wants a private inspection at short notice cannot always be accommodated, and it is better to say so plainly than to promise something the law does not allow.

A tenant who is treated well tends to present the property well. A tenant who is given the minimum notice each time, repeatedly, generally does not.

Photographs and the tenant's possessions

This is the requirement most often missed. Under section 55A of the Residential Tenancies Act, a tenant's written consent is required before you publish photographs or video that show their possessions.

Consent must be in writing, and it cannot be unreasonably withheld, though a tenant can decline for reasonable cause. A tenant who has been in the property less than two months is in a stronger position to refuse.

There are two practical ways to handle it. Obtain written consent before the shoot, which is the cleaner path and lets you photograph the property as it stands. Or shoot the property with the tenant's belongings removed from frame, which is harder to arrange and usually produces weaker images.

Publishing photographs showing a tenant's possessions without their written consent is a breach. It is also the sort of thing that surfaces at the worst possible moment, once the listing is live.

What happens to the lease when the property sells

The lease does not end because the property changes hands. A buyer takes the property subject to the existing tenancy.

Where the tenant is on a fixed term agreement, the buyer inherits it and the tenant stays until the term expires. This means you cannot promise vacant possession at settlement if the fixed term runs beyond that date. Agreeing to a settlement date that requires the tenant to leave earlier than the law allows creates a problem you cannot solve later.

Where the tenancy is periodic, a landlord can end it on 30 days notice where the property has been sold under a contract requiring vacant possession. That notice cannot be given before the contract is exchanged.

Which of these applies determines who your buyer is. A fixed term with time to run points the campaign at investors. Vacant possession at settlement opens it to owner occupiers, who are usually the larger pool.

Investors or owner occupiers

This is the strategic decision, and it is worth making deliberately rather than by default.

Selling with the tenancy in place suits an investor buyer, who acquires an income stream from settlement and does not have to find a tenant. The trade is a smaller buyer pool, because most owner occupiers will not buy a property they cannot move into.

Selling with vacant possession opens the campaign to everyone, and owner occupiers often pay more for a property they intend to live in. The trade is lost rent during the campaign and the vacancy, and a property that shows empty rather than furnished.

There is no universally correct answer. It depends on the rental yield, how long the fixed term has to run, and what the local buyer pool looks like.

What the campaign actually costs your tenant

It is worth being honest about what a sale campaign asks of the person living in the property, because the size of the imposition explains everything about how to handle it.

A tenant has a right to quiet enjoyment of the premises. A sale campaign intrudes on it in a sustained way. Strangers walk through their home, repeatedly, over several weeks. They are expected to clean and tidy to a standard set for someone else's benefit, on someone else's schedule. Photographs of the place they live, and often of their possessions, are published to the internet. Underneath all of it sits an unresolved question about whether they will have to move, and where they would go.

None of this is compensated by default. The rent stays the same while the amenity of the property, from the tenant's point of view, falls considerably. The notice periods in the legislation exist precisely because the law recognises the intrusion and puts limits on it. They are the floor, not the plan.

Why a rent reduction is usually worth offering

There is a decency argument here and a commercial one, and they point the same way.

The commercial argument is that your tenant has more influence over your result than most vendors expect, and every bit of it is exercised lawfully. They can decline consent for photographs showing their possessions, which leaves you shooting an oddly bare property or not shooting at all. They can hold you to two inspections a week and 48 hours notice on each. They can present the property exactly as they find it on a Saturday morning. A tenant with no reason to help you has no obligation to.

Against that, the arithmetic on a reduction is not close. On a property renting at $700 a week, a 20 percent reduction across a six week campaign is $840. Set against a sale price in the hundreds of thousands or the millions, that is a rounding error. Set against a campaign that photographs badly or stalls for a month, it is nothing at all.

Framed properly it is also not charity. It is the cheapest presentation spend available to you, and it buys something no amount of marketing can: a person who lives in the property and is willing to help it show well.

• A rent reduction for the campaign period, commonly 10 to 25 percent, agreed in writing before the marketing starts
• A professional clean before the photography, paid for by you rather than expected of them
• A fixed inspection time each week, set with them, so the intrusion is predictable rather than sprung
• More notice than the legislation requires, every time, as a matter of course
• Avoiding dates that matter to them, such as exams, shift patterns or a new baby
• A clear answer, early, on whether you are selling with vacant possession or with the tenancy in place

Working with your tenant

Tell them before you are required to. A tenant who learns the property is for sale from a signboard, or from a listing a friend sends them, starts the campaign with a reasonable grievance.

Deal with the photograph consent properly and in writing, before the photographer is booked rather than on the morning of the shoot. Asking early, and explaining what will and will not be visible, gets a yes far more often than asking under time pressure.

Where the interference goes beyond what the legislation permits, a tenant can apply to the Tribunal, including for a rent reduction or compensation. Reaching that point is a failure of the campaign as much as a legal problem, because by then the relationship with the person showing your property to buyers is finished.