Selling a property with a tenant already living in it is called an owner-change sale. In most cases the buyer isn't purchasing to live there but to earn rental income, so the way the property is valued and the preparations required differ from a regular sale.
- The lease carries over automatically to the new owner; the tenant's consent isn't required.
- The security deposit also carries over to the new owner and is settled as part of the purchase price.
- Pricing is often based on yield (gross and net yield) rather than comparable market prices.
- Because a tenant is in residence, viewings are limited and tend to focus on common areas and the exterior.
- Notifying the tenant isn't a legal requirement, but it's standard practice for a smooth handover.
What Is an Owner-Change Sale?
Selling a property while the tenant remains in residence is called an owner-change sale. Unlike a sale for owner-occupancy, the buyer is almost always purchasing as an investment to earn rental income rather than to live there, so the approach to valuation and the preparation required differ from a standard sale. Because the pool of prospective viewers is also different — mainly investors and real estate companies rather than individual home buyers — the way the property is marketed differs too.
The Lease Automatically Carries Over to the Buyer
When the owner changes, the lease terms with the existing tenant carry over unchanged (this is known as the transfer of landlord status, chinshakunin taru chii no iten). This happens automatically as a matter of law, and the tenant's consent is not required. Nor can the new owner unilaterally change the rent or lease terms simply because ownership has changed.
Security Deposit Succession and Settlement in the Sale Price
The security deposit held on behalf of the tenant is, in principle, carried over to the new owner. In the purchase agreement, it's standard practice to settle the deposit balance as of handover as part of the purchase price. Sorting out the deposit amount in advance — along with any amount earmarked for restoration costs — helps prevent disputes later. If any special agreements exist with the tenant beyond the deposit, those carry over too, so it's worth organizing a copy of the lease agreement in advance.
Pricing Is Often Based on Yield
Because the buyer of a tenanted property isn't moving in themselves, valuation tends to emphasize rental yield alongside comparable sales in the area. In addition to gross yield (annual rent income ÷ purchase price), buyers typically also check net yield, which nets out management fees and repair costs, so having your rent, management fee, and repair history documentation organized in advance makes the appraisal smoother. If you own multiple units, preparing a rent roll is also useful when requesting an appraisal across your portfolio.
Viewing Limitations and Consideration for the Tenant
As long as the tenant is living there, you need to be mindful of how often and when viewings take place. In cases where viewing the interior is difficult, some sales proceed based on a look at the exterior, common areas, and management documentation instead. If you've outsourced management, it's worth deciding how to handle viewings together with your management company, including any handover of management duties itself.
The Sale Process and Required Documents
The basic flow — valuation, signing a listing agreement, and marketing the property — is the same as for a regular sale, but you'll also need to have tenant-related documents ready, including the lease agreement, disclosure-related paperwork, and receipts for the security deposit. For the process from contract to handover, see sell-25.html. If you're selling a single condo unit, it's also worth checking that management fees and the repair reserve fund aren't in arrears.
Frequently Asked Questions
Do I need to tell the tenant in advance that I'm selling?
It isn't a legal requirement, but since practical matters like the new rent transfer account need to be communicated after handover, it's standard practice to notify the tenant at the right time.
What happens to the security deposit?
In principle, the deposit carries over to the new owner. It's standard practice to settle the deposit amount as part of the purchase price.
Does having a tenant lower the sale price?
Because the buyer pool is limited to investors compared with owner-occupier properties, price tends to be judged based on yield. It doesn't necessarily go down — in some cases the income potential is valued and works in the seller's favor.
Summary
An owner-change sale differs from a regular sale in that the lease and security deposit carry over to the buyer, pricing tends to be based on yield, and viewings are more limited. If you're considering selling, it's worth organizing the lease agreement along with rent and management documentation, and consulting your agent as you proceed.