Selling a House With Tenants in NYC

You can sell a house or apartment in NYC with tenants living in it, but the tenants come with the property: a valid lease stays in force after the sale, and the buyer becomes the landlord. Your job as seller is to give buyers clean information about every lease and deposit, arrange showings without violating the tenants' rights, and hand over the security deposits as New York law requires.

Whether to sell occupied or wait for a vacancy is mostly a question of who your buyers are. Here is how each part works.

What the sale does (and doesn't do) to the lease

A sale doesn't end a lease. The buyer takes title subject to the tenancy and must honor the rent, the end date and the other terms. You can't promise a buyer “delivered vacant” unless the tenant has actually agreed to leave or the lease is ending and you can lawfully decline to renew. For a free-market tenant, whether you can decline to renew may depend on whether the apartment is covered by New York's Good Cause Eviction law; see does Good Cause Eviction apply.

For rent-stabilized tenants, the Attorney General's tenants' guide notes that they have a right to a one- or two-year renewal lease and can be refused renewal only on specific grounds, such as not using the apartment as a primary residence. A sale by itself is not one of them. A buyer of a stabilized unit is buying a regulated rent stream, so price it that way. Read rent-stabilized lease renewal rules before you list.

Occupied or vacant: who buys what

Fannie Mae's guidelines let a lender use existing leases that will transfer to the buyer as rental income on a purchase, with documentation conditions. That can help a buyer of a two- to four-family qualify. Expect the buyer's lender and attorney to ask for copies of every lease and a rent roll. See buying a two- to four-family house for the buyer's side.

Showings and access

New York's Attorney General says a landlord may enter with reasonable prior notice, at a reasonable time and with the tenant's consent, to provide repairs or services, or as the lease allows; if a tenant unreasonably withholds consent, the landlord can ask a court for an order. Many leases include a clause on showing the unit to buyers; read yours. For rent-stabilized apartments, the Rent Stabilization Code treats a tenant's unreasonable refusal of access for showing to a prospective purchaser or mortgagee as a possible eviction ground, but only after at least five days' notice (ten if the notice is mailed), at a mutually convenient time so the tenant can be there, and not in conflict with the tenant's lease.

1. 1

   Tell tenants before the listing goes live

   A short letter or conversation explaining the sale, that their lease continues, and how showings will work prevents most problems.
2. 2

   Batch the showings

   Offer one or two set windows a week instead of daily visits. Give written notice each time and let the tenant be present.
3. 3

   Photograph or video the unit once, with permission

   Good listing photos and a floor plan reduce the number of in-person visits. Never photograph tenants’ belongings or documents without consent.
4. 4

   Consider a thank-you

   Some sellers offer a rent credit or cleaning help for cooperation during the sale. It is optional, so put any agreement in writing.

Estoppel letters: proving what the leases say

An estoppel certificate (or estoppel letter) is a short statement signed by a tenant confirming the lease dates, the rent, the deposit amount, and that there are no side deals or disputes. Buyers and their lenders use it to make sure the seller's rent roll is accurate. The idea, reflected in the name, is that a tenant who signs one should not later be able to claim different terms against the buyer.

No New York statute requires tenants to sign one. A tenant has to sign only if the lease includes an estoppel clause; otherwise you can ask, and many will cooperate if the form is short and accurate. If a tenant won't sign, the buyer's attorney may accept a seller certification instead, often backed by a contract representation.

Security deposits: the closing-day rule

Under New York General Obligations Law §7-105, when you convey the property you must, at delivery of the deed or within five days after, turn each tenant's deposit (with any interest owed) over to the buyer and notify the tenant by registered or certified mail of the buyer's name and address. Once you do, you are released from liability for that deposit and the buyer becomes responsible for returning it. Failing to comply is a misdemeanor.

Buyers have their own protection. Under §7-108, a buyer is liable for deposits it has actual knowledge of even if the seller never handed them over, and it is treated as knowing about a deposit that is in a lease in effect at the sale, that was put in a bank in the six months before the transfer, or that the tenant can document. Where there is no record of a deposit, the buyer can demand that the seller set up an escrow equal to one month's rent at closing. Section 7-107 has similar rules for rent-stabilized units.

In practice your attorneys handle this as a credit to the buyer on the closing statement: the buyer gets credit for all deposits plus interest, and prorated rent for the month of closing is adjusted between you. Then the tenant letters go out by certified mail.

A simple seller's timeline

1. Before listing: pull leases, deposit records and registrations; check the building's violations on Roofy.
2. Listing: tell tenants, set showing windows, decide whether to offer a buyout to any tenant who wants to move.
3. Contract: attach the rent roll; your attorney negotiates the lease and deposit representations.
4. Before closing: collect estoppel letters, update the rent roll, line up deposit transfer figures.
5. Closing day: credit deposits and prorate rent; within five days send each tenant the certified-mail notice.