Selling a Multi-Family With Tenants in Massachusetts

Selling a two-family, three-family or larger building with tenants in place is very common in Greater Boston. It can also be tricky. Massachusetts has strong tenant protections, and buyers will want clear paperwork about rents, leases and deposits. This guide covers what owners need to know, from notice rules and showings to security deposits, rent rolls, and condo conversion rules in places like Boston.

Leases vs. tenants at will

How you can sell depends a lot on what kind of tenancy each unit has.

A sale does not cancel a lease. If a unit has a lease running until next August, the buyer becomes the landlord under that lease. This matters most when your buyer wants to move into a unit.

Showings: getting access the right way

Under the Attorney General’s guide to landlord and tenant rights, a landlord must arrange entry with the tenant in advance to show the apartment to buyers or real estate agents. Emergency entry is only for urgent repairs or apparent abandonment. Many leases include a clause about showings, so read yours.

A few tips that make showings easier for everyone:

• Talk with tenants before the listing goes live. Tell them what to expect and how much notice you will give.
• Group showings into set time blocks instead of daily visits.
• Use a good set of photos and a floor plan so fewer buyers need to see occupied units in person.
• Consider showing occupied units only to buyers who have seen the vacant unit or common areas first, or who already have an accepted offer.
• Thank tenants. A clean, cooperative unit helps your sale price.

Security deposits and last month’s rent

Massachusetts security deposit law (General Laws chapter 186, section 15B) is strict, and it follows the building when it is sold:

• At or before closing, the seller must transfer or credit each tenant’s security deposit, last month’s rent, and accrued interest to the buyer.
• The new owner must notify tenants in writing within 45 days of receiving those funds.
• The new owner is generally responsible for the deposits and interest even if the seller never handed them over. The seller also stays liable until the funds are properly transferred or returned.
• A new owner cannot require tenants to pay a new deposit just because the building changed hands.

Landlords may collect first month’s rent, last month’s rent, a security deposit no greater than one month’s rent, and the cost of a new lock and key. Deposits must be held correctly and earn interest. Mistakes can lead to triple damages, so buyers and their attorneys will look closely. Find bank receipts and interest records before you list.

The documents buyers will ask for

1. Rent roll: each unit’s rent, lease dates, deposit, last month’s rent, and who pays which utilities.
2. Copies of leases and any written agreements with tenants.
3. Tenant estoppel certificates: short forms signed by tenants confirming their rent, deposits, lease dates and that no side deals exist. Buyers and lenders often ask for these before closing.
4. Operating expenses: 12 to 24 months of utilities, insurance, taxes, repairs and water and sewer bills.
5. Lead paint records: for buildings built before 1978, the signed Tenant Lead Law Notification forms, and any Letter of Compliance or Letter of Interim Control. Landlords must delead or control hazards when a child under six lives in the unit.
6. Permits and violations: any open building, fire or health code issues.

Selling to investors vs. owner-occupants

Owner-occupant buyers often pay more for two- and three-family homes, but only if they can move in. If all units are leased, consider timing your sale around a lease end, or work with a tenant who plans to move. Never promise a buyer a vacant unit unless you are certain you can deliver it. Learn what owner-occupant buyers look for in our guide to buying a multi-family to live in, and what investors look for in our multi-family investing guide.

Condo conversion rules

If you or your buyer plan to turn units into condominiums, extra rules apply. Simply selling the building as a multi-family is different from converting it.

Statewide law

Massachusetts’ condo conversion law (Chapter 527 of the Acts of 1983) generally requires at least 1 year’s notice to tenants, and at least 2 years for elderly, disabled, or low- and moderate-income households. Tenants have a right of first refusal to buy their unit, and some tenants get moving benefits.

Boston

Boston’s Condominium and Cooperative Conversion Ordinance covers buildings built before December 1983 with four or more rental units. After amendments in 2021:

• All tenants get a 1-year notice period.
• Tenants who are 62 or older, have a disability, or are low or moderate income get a 5-year notice period.
• Relocation payments are $10,000 per unit, or $15,000 for those protected households.
• The owner needs a conversion plan approved by the city and a conversion permit from Inspectional Services.

Other communities, including Brookline, Somerville, Lexington and others, have their own local rules. Always check with the city or town and a real estate attorney first. See our Massachusetts landlord guide for more on tenant rules.

A simple selling plan

1. Gather leases, rent roll, deposit records and expenses.
2. Get a market value based on both income and comparable sales.
3. Talk with tenants and set showing rules.
4. Decide whether to target investors, owner-occupants, or both.
5. At closing, transfer deposits and interest and give tenants the new owner’s contact information.

How Luis can help

Luis has sold multi-family buildings across Greater Boston for more than 30 years, for both investors and owner-occupants. Our team can price your building on income and sales, coordinate respectful showings with your tenants, and explain each step in English or Spanish. Start with a free 15-minute call or visit our investor page.