Selling rental property with tenants in California can be complicated. As a landlord, you have the legal right to sell your property, but tenants also have strong protections under California law.
Many landlords assume that selling their rental property means they can immediately ask tenants to leave, but that’s not always the case. If tenants have a valid lease, the new owner must honor it. Even for month-to-month renters, landlords must follow specific rules before ending the tenancy.
So, how do you sell your rental property legally while keeping the process smooth for both you and your tenants?
Let’s get started.
Can a Landlord Sell a Rental Property with Tenants in California?
Yes, a landlord can legally sell a rental property with tenants in California. However, the sale does not automatically terminate a lease. The tenant’s rights depend on the type of rental agreement they have.
Here’s how it works:
- Fixed-term leases (e.g., a 12-month lease) – The tenant has the legal right to stay until the lease expires. Even if the property is sold, the lease remains valid, and the new owner must honor the terms.
- Month-to-month leases – The new owner can terminate the tenancy with proper notice if they plan to move in or make major renovations.
- Eviction restrictions – Landlords cannot evict tenants simply because they want to sell. In many cases, landlords must provide relocation assistance or find a legal reason to end the tenancy.
Selling a house with tenants in California requires careful planning. If you don’t follow the proper legal steps, you could face tenant disputes or legal action.
Tenant Rights When a Landlord Sells Property in California
California has some of the strongest tenant protection laws in the country. If you are selling a rental property, you must follow legal procedures to ensure your tenants’ rights are not violated.
1. Tenants Can Stay Until Their Lease Expires
If a tenant has a fixed-term lease, the sale of the property does not terminate the lease agreement. The tenant has the right to stay until the lease ends, and the new owner must abide by the lease terms.
However, if the lease is month-to-month, the new owner can give notice to end the tenancy, but they must follow state and local regulations.
2. Proper Notice Is Required for Showings
If a landlord wants to show the property to potential buyers, they must:
- Give tenants written notice of intent to sell the property.
- Provide at least 24-hour notice before each showing.
Landlords cannot enter a tenant’s home without permission, except for emergencies or with proper notice.
3. Tenants in Rent-Controlled Cities Have Extra Protections
Certain cities in California, such as Los Angeles, San Francisco, and Oakland, have rent control laws that limit when and how landlords can evict tenants due to a sale.
In some cases, landlords may be required to:
- Provide relocation assistance to displaced tenants.
- Offer a tenant the first opportunity to buy the property before listing it publicly.
- Prove that the new owner plans to live in the property before issuing an eviction notice.
It’s essential to check your local rent control laws before selling your rental property.
4. The Right to a 30- or 60-day Notice to Vacate
If a tenant is renting on a month-to-month basis, landlords must provide:
- 30-day notice – If the tenant has lived in the home for less than one year.
- 60-day notice – If the tenant has lived in the home for more than one year.
If the tenant is under a fixed-term lease, they cannot be forced to move until the lease expires.
Options for Selling Rental Property with Tenants in California
If you are selling rental property in California, you have several options depending on whether you want to sell with tenants in place or have the property vacated before selling.
1. Sell to a Real Estate Investor Who Wants Tenant-Occupied Properties
One of the easiest ways to sell a rental property with tenants is to sell it to a real estate investor who specializes in tenant-occupied properties.
Benefits of selling to an investor:
- No need to evict tenants – The investor takes over as the landlord.
- Faster sale – Investors are often cash buyers who can close quickly.
- No need for costly repairs – Investors typically buy properties as-is.
If your tenants pay rent on time and have a long-term lease, the property may be more attractive to investors looking for a stable rental income.
2. Offer “Cash for Keys” to Tenants
If you prefer to sell the property vacant, cash for keys can be a good option.
Cash for keys is a voluntary agreement where the landlord offers a financial incentive to the tenant in exchange for moving out before the lease ends.
Why tenants might agree:
- They receive money to help cover moving expenses.
- They avoid the stress of eviction.
- They have time to find a new rental home.
A cash-for-keys agreement must be voluntary and in writing to be legally valid.
3. Wait Until the Lease Ends and Sell the Property Vacant
If your tenant’s lease is ending soon, you might choose to wait until they move out naturally before listing the property for sale.
Selling a vacant property is often easier because:
- Buyers can immediately move in.
- You don’t have to coordinate showings with tenants.
- The home may sell for a higher price.
FAQs About Selling Rental Property with Tenants in California
1. What happens to tenants when a property is sold in California?
If a rental property is sold, tenants do not have to move out immediately. Fixed-term lease agreements remain valid, and the new owner must honor them. For month-to-month tenants, the new owner can issue a 30- or 60-day notice to end the tenancy, depending on how long the tenant has lived there.
2. Can a landlord break a lease to sell the property in California?
No, a landlord cannot break a lease early simply because they want to sell the property. Fixed-term leases remain valid until they expire. The only way to remove a tenant before the lease ends is through a legal eviction process, which requires a valid reason under California law.
3. How do I avoid capital gains tax on rental property in California?
Landlords can defer capital gains tax by using a 1031 exchange, which allows them to reinvest the proceeds into another rental property. If they qualify for the primary residence exclusion by living in the property for at least two out of the last five years, they may also be able to exclude up to $250,000 ($500,000 for married couples) from capital gains taxes.
4. Can a new owner evict a tenant in California?
A new owner cannot evict a tenant with a valid lease. If the tenant is renting month-to-month, the new owner can issue a proper notice to vacate if they plan to move in or make substantial renovations. If the property is in a rent-controlled area, the new owner may need to provide relocation assistance before evicting the tenant.
5. Does a landlord have to tell tenants they are selling in California?
Yes, landlords must inform tenants in writing if they plan to sell the rental property. After providing notice, landlords can give 24-hour oral notice before each property showing for up to 120 days. Landlords cannot force tenants to leave just because they are selling.
In conclusion, Selling rental property with tenants in California requires careful planning, legal compliance, and a clear understanding of tenant rights. Whether you want to sell with tenants in place or have the property vacated before listing, following the right approach can make the process smoother and more profitable.
If your tenants have a fixed-term lease, the new owner must honor it. If they are month-to-month tenants, proper notice must be given before ending the tenancy. In rent-controlled areas, landlords may also need to provide relocation assistance or meet additional legal requirements.
To maximize your sales and minimize legal risks:
- Consider selling to an investor who prefers tenant-occupied properties.
- Use a cash-for-keys agreement if you want to sell the property vacant.
- Work with a real estate agent experienced in rental property sales to navigate legal challenges and attract the right buyers.
Lastly, don’t forget to evaluate the tax implications of selling your rental property. A 1031 exchange can help defer capital gains tax while understanding depreciation recapture can prevent unexpected tax liabilities.
By following these best practices and respecting tenant rights, you can successfully sell your rental property in California while ensuring a fair and legal process for everyone involved.
