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The Pitfalls Encountered When Selling a Tenant-Occupied Residence

by Chris Fowler, Buckley Law, P.C.

Qualifying Landlord Reasons: Terminating A Tenant Without Tenant Cause

Renting a property to a tenant can be a great way to increase a homeowner’s income through their investment property. However, what happens when a homeowner wants to sell their investment property outright? Unfortunately, it is not as easy as simply telling the tenant to leave and listing the property for sale.

There are two potential outcomes to selling a tenant-occupied property. One is that the new owner will occupy the property, thus requiring the tenant to vacate the property, and the other is that the new owner wants to use the property as an investment property, in which case the tenant is going to stay.

In the first situation, wherein a purchaser plans to reside in the property as their primary residence, the tenancy for the existing tenant needs to be properly terminated. This falls under ORS 90.427 as a termination without a tenant cause. In most situations, terminating a tenancy without a tenant cause requires what are called Qualifying Landlord Reasons (QLRs), which were introduced in Senate Bill 608 in 2019. These are special circumstances that allow a landlord to terminate a tenancy without the normal justification of a tenant violating the lease. There are very few QLRs, but one of them is when a landlord has accepted an offer to purchase the property by someone planning to use the property as their primary residence.

All QLRs have their own timing requirement for a notice of termination. When a landlord accepts an offer to purchase the property, it must notify the tenant of the accepted offer within 120 days of acceptance. The termination notice must give the tenant 90 days before the tenancy is terminated. This termination also triggers payment of relocation assistance in an amount equal to one month’s rent, which is due to the tenant at the time the termination notice is served.

What happens if the Tenant refuses to leave?

So let’s say the landlord has accepted an offer to purchase the property, given the tenant a 90-day notice of termination and one month’s rent as relocation assistance, and the termination date arrives but the tenant fails to vacate the property? The next steps depend on whether the landlord closed on the purchase prior to the termination date or not.

If the landlord delivers the 90-day notice of termination and the transaction closes prior to the termination date, then the new owner becomes the landlord and is responsible for managing the current tenant until the termination date. If the tenant then holds over and refuses to leave, the new owner must pursue an eviction suit against the tenant. The previous owner of the property has no obligation to the tenant or new owner after the closing of the sale transaction.

If the landlord delivers the termination notice and then waits to close on the sale to the new owner until after the termination date, then the tenant remains the responsibility of the original landlord. If the tenant refuses to vacate, then the original landlord will have to file an eviction against the tenant, and closing will likely be delayed until the eviction proceedings are concluded.

How can a Landlord ensure they are following the correct process?

As with anything involving tenants in Oregon, the best thing a landlord can do is consult with an attorney to ensure the rules are followed. Tenant terminations are extremely technical, and they are even more difficult when using a QLR instead of tenant conduct. It is important to be upfront with a tenant when a landlord is listing the property for sale. Landlords need to make sure they know why a prospective buyer is purchasing the property, and confirm the notices and timelines required for termination.

We at Buckley Law are here to answer these questions and help you navigate these unknowns. We specialize in representing landlords and can help navigate the many intricacies and potential pitfalls of selling tenant-occupied properties. If you have questions or need legal assistance regarding real estate and contracts, please contact the Buckley Law real estate team of Chris Fowler at 503-620-8900.

Chris Fowler, LL.M.

Chris Fowler is a Shareholder in the Real Estate and Business practice groups. His practice is focused on real estate, and Chris regularly advises clients on both litigation and transactional matters. He also regularly advises clients in the areas of: business, finance, commercial law, construction, regulatory compliance, banking, and litigation.

This material is provided for informational purposes only. The provision of this material does not create an attorney-client relationship between the firm and the reader, and does not constitute legal advice. Legal advice must be tailored to the specific circumstances of each case, and the contents of this article are not a substitute for legal counsel. Do not take action in reliance on the contents of this material without seeking the advice of counsel.