The time has come to sell your rented property. Now, you’re faced with a situation where not only do you have to navigate your way through a sale, but also your obligations as a landlord. In this article, we’ll walk you through what is involved in selling a tenanted property in South Africa.
Can you sell a tenanted property?
This, of course, is the burning question. Happily, the short answer is “yes, but …”. There always is a “but”, isn’t there?
Roman-Dutch law incorporates the principle that the lease takes precedence over the sale of the property or, in Dutch, huur gaat voor koop.. Effectively, this protects the tenant from having their home sold from underneath them and automatically transfers the landlord’s responsibilities to the new owner.
The lease agreement is a mutual protection
The lease or rental agreement between the landlord and tenant is the starting point. This contract is not a nice-to-have. Rather, it’s a necessary evil that protects both parties.
In addition to the huur gaat voor koop principle, South African law protects tenants from abrupt or hasty evictions, through two pieces of legislation, i.e. the Prevention of Illegal Eviction from Unlawful Occupation of Land Act and the Extension of Security of Tenure Act (known as the PIE Act and ESTA).
The other laws that protect tenants are the Rental Housing and Consumer Protection acts.
That said, the lease remains an important and useful tool. We suggest that you take a long, hard look at it before you list your property so that there are no nasty surprises once you sell.
What does the lease agreement’s termination clause say?
Most important is the question of the duration of the lease: is it a fixed term or month-to-month? Don’t get trapped into thinking that you can simply give your tenant notice. You can only do this in terms of the lease, and even if it is a fixed term lease, and the agreed termination date is approaching, you are still legally obliged to give your tenant notice.
If, when you renewed the lease, the rental term has shifted to a month-to-month basis, you must still give the tenant proper notice that the lease will terminate and that they must move out.
Word to the wise: Some leases include clauses that:
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offer the tenant the right of first refusal if the owner decides to sell (i.e. purchase the property before the landlord sells it to someone else)
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trigger the termination of the lease if the property is sold
Be sure to check your lease for either of these clauses and give your tenants sufficient notice to either make an offer to purchase before other prospective buyers or inform them that they must vacate the property.
Breaking the news to the tenant
As with most things, management by no surprises is usually the key. So, it’s best to be transparent. Instead of giving the tenant notice, you could tell them that the property is to be sold, assuring them that they are protected because of the huur gaat voor koop principle and other laws in South Africa. Of course, they will have to agree to help you with the sale by not only allowing prospective buyers to view the property but ensuring that it’s presented in a way that promotes the sale.
Then, it is up to them to decide whether to give you notice or to wait out the sale process to see what happens with the new owner. Assuming the tenant agrees to stay, you will need to assure them that every step will be taken to minimise inconvenience when the property is viewed, giving them 24 to 48 hours’ advance notice.
Top Tip for those who are not working through a rental agent: Sensitive news is best delivered in person, so set up a coffee meeting with the tenants and then follow up with a formal email confirming the notice period, date of vacation and any other agreements you discussed during the conversation.
Pros and Cons of selling a vacant property
If the tenant does decide to move, you must weigh up the pros and cons of selling an empty property. On the one hand, a tenanted property could have added appeal to buyers who want an investment that will both appreciate in value and generate a regular rental income. A vacant property can also cost you money: not just in maintenance, but rates and taxes too.
On the other hand, the two key advantages of selling a vacant property are the ease of access for viewings and, for the buyer, the prospect of immediate occupation without having to negotiate around a tenant and their rights, which take precedent over the sale.
Transitioning to a seller-landlord
When you sell your property with a resident tenant, your responsibilities as a landlord automatically transition to the buyer. This means that once the property is registered in their name, not only are they responsible for the major upkeep of the property, but they must honour the existing (or new) terms of the lease. This includes holding the deposit in an interest-bearing account so that when the lease terminates, the deposit, with interest earned, but less legitimate costs, can be returned to the lessee.
Once the lease agreement concludes and/or if the new owner decides that they no longer wish to have tenants, they must give notice in terms of the lease. Similarly, if they give notice and the tenant refuses to vacate the property, the usual process to secure an eviction would kick in.
Top Tip: Make sure that all the relevant documentation and funds associated with the rental agreement (deposit) are incorporated into the sale and transfer process. This will prevent any confusion at a later stage.
In summary
It is most certainly both possible and legal to sell a tenanted property in South Africa. However, like all property transactions, each one is differently nuanced. For personalised and professional advice, it’s best to ask a registered real estate agent. Reach out to your local RE/MAX office if you’re considering selling your rented property.
Have more unanswered questions? Here are some related questions – and answers – that might help…
In South Africa, how much notice do you need to give a tenant to vacate?
Generally, the notice period for tenants is set out in the lease agreement. However, if the tenant is in breach of that contract, the Consumer Protection Act indicates that the landlord can cancel the agreement 20 days after issuing written notice.
