Should I Remove My Tenants Before Putting My Property Up For Sale?

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Should I Remove My Tenants Before Putting My Property Up For Sale?

You can certainly put your investment property up for sale with tenants in place. This will deter potential owner occupiers who will shy away from having to evict sitting tenants. However, a buy to let investor may be interested in acquiring an investment property that will generate rental income from the very first month with no need for him/her to find tenants. Having sitting tenants will also take the guesswork out of calculating the rental yield on offer. While each case is different, typically bringing a property to the market with vacant possession is the best option as you are opening up the property to buy to let and owner occupiers alike, thereby maximising the price likely to be achieved. If you do decide to remove the sitting tenants, there are a number of matters to consider, which are outlined below. A quick aside to note here is that if you have a good relationship with your tenants, they have agreed to “go peacefully” so to speak and have the property in good condition, there is no need to delay putting the property on the market until the day they move out. Selling a property, from going live on Daft / MyHome, to signing contracts can take literally several months. This can put quite a lot of strain on a vendor as they have to service a mortgage with no rent coming in. So, if possible, it is worth trying to sell the property in parallel with tenants serving out their notice periods so as to reduce the number of mortgage payments that have to be made while the property is empty and no rent is coming in. That being said, if the tenants are “digging in” and you feel they may look to frustrate the sale to protect their own interests, it is best to wait for them to leave before putting on the market. For example, if they have the property in a mess while we are trying to conduct a viewing, this will obviously not help the sales process.

How to Remove Tenants from My Property

The first thing to be aware of here is that this is a delicate situation and one that needs to be handled compassionately and fairly. Your tenants have made your property their home, sometimes for several years, and now you are asking them to leave. In the current rental market, finding alternative accommodation is not easy so tenants may resist your efforts. The RTB lists 6 scenarios in which a landlord is entitled to terminate a tenancy:

 
  1. The tenant has failed to comply with their obligations having first been notified, in writing, of the failure, and given an opportunity to remedy it.
  2. The landlord intends to sell the dwelling within 3 months of the termination date.
  3. The dwelling is no longer suited to the needs of the occupying household.
  4. The landlord requires the dwelling for own or family member occupation – this is not applicable to tenancies involving Approved Housing Bodies.
  5. Vacant possession is required for substantial refurbishment of the dwelling.
  6. The landlord intends to change the use of the dwelling.

While a landlord who wishes to sell his/her property is entitled to terminate a tenancy, there are however a number of things to keep in mind when embarking on this process.

Have You Registered the Tenancy with the RTB?

All residential tenancies have to be registered with the RTB. Not registering a tenancy can have potentially serious consequences. The below is from the RTB website:

 

Penalties for not registering a tenancy: What are the penalties for not registering a tenancy? A person who does not comply with their responsibility to register their tenancy/ tenancies faces a criminal conviction and a fine of up to €4000 and/ or 6 months imprisonment, if convicted. In addition to the Court imposed fines, the landlord will also have to pay the RTB’s legal costs which can be in the region of €2,500 plus VAT per case.The RTB does not wish to prosecute landlords. We will work with landlords to assist them in registering their tenancies if they contact us on receipt of the formal notification and in advance of any summons issuing. However, if a summons has issued then the case will go to Court.

If you have forgotten to register a tenancy with the RTB, the tenants may use this as leverage to delay and frustrate your efforts to remove them. Tenancies can be registered late by paying the usual registration fee of €90 plus a €90 late filing fee (€180 in total). By registering the tenancy and being fully compliant, a landlord can rely on the support of the RTB in his/her efforts to remove a tenant.

Notice Periods for Tenants

The notice period that you are required to give to tenants varies depending on how long they have been your tenants at the property that you are selling. Note that Day 1 of the notice period starts the day after the notice of termination is issued.

Duration of Tenancy Notice Period
Less than 6 months 28 days
6 or more months but less than 1 year 90 days
1 year or more but less than 3 years 120 days
3 years or more but less than 7 years 180 days
7 years or more but less than 8 years 196 days
8 or more years 224 days

Source: Residential Tenancies Board website

 

Issuing a Valid Notice of Termination to Tenants

In disputed cases brought to the RTB in 2016, 43% of notices were deemed to be invalid. Accordingly, it is worth taking the time to ensure that the notice you issue is valid as if a notice is deemed to be invalid, a new notice must be issued. Below is a template notice of termination for a landlord who wishes to sell a property. Note that this must also be accompanied by a statutory declaration of your intention to sell the property; this needs to be signed by the landlord in the presence of any one of the following: practicing solicitor, a notary public, a commissioner for oaths, peace commissioner. A template statutory declaration is below the template notice of termination. Both need to be furnished to the tenants in writing.

 

NOTICE OF TERMINATION – Landlord intends to sell the dwelling

To: (INSERT NAME)

The tenancy of the dwelling at (Insert Address of Rented Dwelling) will terminate on XX/XX/XXXX.

You must vacate and give up possession of the dwelling on or before the termination date.

The reason for the termination of the tenancy is due to the fact that the landlord intends, within three months of the termination date, to enter into an enforceable agreement for the transfer to another, for full consideration, of the whole of his or her interest in the dwelling or the property containing the dwelling.

You have the whole of the 24 hours of the termination date to vacate and give up possession of the above dwelling.

Any issue as to the validity of this notice or the right of the landlord to serve it, must be referred to the Residential Tenancies Board under Part 6 of the Residential Tenancies Acts 2004 to 2016 within 28 days from the date of receipt of it.

This notice is served on XX/XX/XXXX.

  Signed:     _________________________ A. N. Other Landlord  

Please note – In order to ensure that there is no delay on returning the deposit, I would suggest carrying out inspections on (Insert Date) at (Insert Time). Please let me know if this time is convenient for you.


Sample Statutory Declaration for Landlord intending to sell the dwelling

I, [Insert Name], do solemnly and sincerely declare that I intend, within a period of three months after the termination date, to enter into an enforceable agreement to transfer to another, for full consideration, the whole of my interest in the dwelling or the property containing the dwelling. Note – Where the purported sale is intended to be part of the sale of 10 or more units as defined under section 35A of the Residential Tenancies Acts 2004 – 2016, and the tenancy concerned is a Part 4 tenancy, the Statutory Declaration is required to declare whether or not Section 35A(3)(a) applies. Where it applies, the declaration should reflect the wording under section 35(8)(b) of the Residential Tenancies Acts 2004 – 2016. I make this solemn declaration conscientiously believing the same to be true and by virtue of the Statutory Declarations Act 1938.

[Declarant to Sign Here] …………………………………………………………

Declared before me ………………………………………….. a [practising solicitor] [notary public] [commissioner for oaths] [peace commissioner] [person authorised by [insert authorising statutory provision] …………………………………………….. to take and receive statutory declarations] by [Insert Name of Declarant]……………………………………………………….

Who is personally known to me / who has been identified to me by ……………………………… who is personally known to me and who has certified to me his/her personal knowledge of the declarant. Or The identity of the declarant has been established by me by reference to a [Insert Identifying document*] containing a photograph of the declarant.

This …………. day of …………….. 2016 at …………………….. [insert place of signature]     ____________________________ [Signature of Witness]   *Approved Identifying Documents
  1. Passport issued by the authorities of an issuing State that is recognised by the Irish Government [passport number, date of issue and issuing State must be inserted]
  2. National Identity Card issued by the authorities of an issuing State which is an EU Member State, the Swiss Confederation or a Contracting Party to the EEA Agreement [national identity card number, date of issue and issuing State must be inserted]
  3. Aliens Passport issued by the authorities of an issuing State that is recognised by the Irish Government [passport number, date of issue and issuing State must be inserted]
  4. Refugee Travel document issued by the Minister for Justice, Equality and Law Reform [document number and date of issue must be inserted]
  5. Travel document (other than a refugee travel document) issued by the Minister for Justice, Equality and Law Reform [document number and date of issue must be inserted]
 

Is Your Rent Below Market Value?

Before the introduction of Rent Pressure Zones, landlords often accepted rents that were below market levels. This was common among non professional, so called “accidental landlords”, who weren’t comfortable increasing their tenants’ rent, particularly if the tenant was a good, trouble-free one. However, with the introduction of RPZ’s this rent can now only be increased by 4% annually ie the sub market level rent is locked in so to speak. This applies to the property and not to the individual landlord ie an investor who buys a property in an RPZ will be subject to the 4% annual rent rise cap. If the property’s current owner hasn’t increased the rent in a number of years, the RTB does allow for the rent to be increased beyond 4%; more on this below.

So by undercharging rent, the value of the property can be substantially reduced. Rental yields vary nationwide and by property type but a typical investor will look, at the time of writing, for approximately a 6-8% rental yield. Another way of saying this is that a property is worth approximately 14.2 times its annual rental income (assuming 7% yield). Let’s suppose that a landlord was charging €300/month (€3600 per annum) less than what would have been achievable, this will reduce the price that an investor would be willing to pay by approximately €51,428. In such an instance, an owner occupier might be a more likely buyer as they will be unconcerned with the rent that was being charged whereas as buy to let investor will only pay a multiple of the rent that was being achieved as they will be tied to that moving forward. It is important to note that if no rent increase has been implemented in a number of years, the RTB does allow the landlord to “catch up” for missed years so to speak ie if you haven’t increased in the last 3 years, you can increase beyond 4% – to see the precise rent raise that you can legally implement, see here . This may not be enough to get you to market levels but will certainly help to bridge the deficit somewhat. More adventurous landlords may look to increase the rent beyond the 4% limit by availing of one of the exemptions available – for more, see here. As you will see, the days of doing minor refurbishment works and claiming a substantial change exemption are gone. To claim this exemption, does require the landlord to incur meaningful time and expense to genuinely improve the quality of the property.

Conclusion

Selling a property with sitting tenants can be a stressful exercise with a lot to consider. If you are considering selling your property and need some advice, please contact us and we will be happy to help.

While we take great care to keep this document up to date, there are frequent legislative and regulatory changes to this sector; this post is meant as a general guide only and should not be taken as formal advice. Before making any decision, make sure to take professional advice.