Buying a duplex, do existing leases transfer to me automatically?

Question

I am buying a duplex. Both sides occupied. Current tenants just renewed for another 3 years each until July 2018. Good deal, will put it in the deal diaries a little later after we close in a few days.

Do the leases automatically transfer to me? Or do I have to get the tenants to sign a new lease with my name on it as the landlord? What if they refuse to sign the new lease?

And if they refuse, what if they decide to break the lease later on down the road and the lease is still in the old owners name? Will I have authority to enforce the lease?

Account Closed · Answer

@Austin Entrop

I believe the answer to your question is yes. You'll inherit the lease as is.

There's no harm in asking them to sign your lease and they might say yes. But if you change the terms and condition in any way they don't like, why would they sign? If the lease you are offering them has the same terms and conditions you won't get less or more protection by having them sign your lease.

Assume the lease in place is the lease you're going to have to manage and if you can live with that, everything else is a bonus.

Personally, I don't like that the tenants have a three year lease in place. It would make me nervous. What if they rent they pay is under market and you're going to have to wait out those three years before you can get the rent to market rate? What if you don't like them? What if they don't like you? Or they see you as the new guy and try to see what they can get away with. I would go over there and introduce myself as soon as you're able to do so (probably after closing) and establish yourself and your relationship with them on a positive footing.

Carlos Fernandez · Answer

I'm not a lawyer, and I do not play one on the internet, but here goes...

The leases stay with the property. Now would be a good time if you wanted to re-negotiate certain terms, but don't go crazy. Be very reasonable. My 2nd to last apartment as a tenant was bought by a new landlord, and she approached us to make changes to the lease. It was great, b/c we were month-to-month but were going to stay for a couple of more years. She expressed that she would sleep better with a year long lease. We agreed, but in exchange for reducing the insane 3 month deposit down to 1. She agreed. There were other things, such as parking issues. We had the best parking spot, but the other tenant paid way more rent, so we had to give up the parking spot. But then we negotiated the better storage shed b/c we needed it more than the neighbor.

Me personally, I would get out of that 3 year lease. You open yourself to a massive can of worms. Allow me to explain:

I've never had a problem w/ this, but a neighbor of mine got screwed by a long-term lease. The way he explained it is that anything over a year, then the tenant has an interest in the property, and the eviction turns into a foreclosure, which is a nightmare. That happened 15+ years ago, and this guy still shudders when talking about it. The experience made him switch to being a developer and he liquidated most of his rentals, keeping only the high performing ones with the largest room for appreciation.

I like 12 month leases that turn into month-to-month. The main draw for long leases is to ensure longer term tenants. Once they've been there for a year, tenants would rather not move, unless you're charging full market rent or above. I promise my tenants I'm not a big fan of rent increases, and i tell them that it's because it leads to turn-over and units sitting empty. And then I don't raise the rent unless my expenses go up, and they all know that I borrowed hard money to buy the property, or I tell them I have an ARM and it just increased. I also like to charge 5% below market. That way I get better choices for tenants, and they feel indebted to me b/c they know I'm hooking them up. I haven't missed a day's rent in over 5 years.

I love the site rentometer.com. It pulls from MLS to find the average and median rental in that vicinity. If you want to re-negotiate minor and/or major parts of the lease, knowing where your duplex stands in the market gives you power.

Matthew Atkinson · Answer

From my vague memory of law school, the leases are an agreement with the real property. By purchasing the property you are acquiring any prior leases and encumbrances.

Account Closed · Answer

You need to communicate with the seller to get the signed copies of the leases and the deposit money.  Also all the check in material. It would be best to do a quick walk thru with the seller & tenant to confirm condition.

Pete T. · Answer

The first thing you want to do is become completely familiar w/ your state's laws.  You will likely need to honor the tenants leases, however, there are ways to remove tenants, sign new leases etc, depending on your goals and state laws.