Seller's current tenant has a lease agreement for FREE rent!

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Seller's current tenant has a lease agreement for FREE rent!

Account Closed
Real Estate Investor · Shelton, WA · Member since 2013 · 369 posts · 639 votes

Seller is out of state and inherited a property from seller's deceased father. Deceased father's girlfriend (tenant) has remained in the property rent free since the passing of the father over 1 year ago. Seller and tenant absolutely hate each other, but remaining family members have pressured seller into entering into an agreement to allow the tenant to remain in the property, rent free, until June 2017.

Seller is in a financial bind, can't afford to pay the taxes and wants to sell ASAP.

In previous situations where an occupant needed time to vacate, I paid seller half the purchase price at closing and left the other half in escrow until the occupant vacated the premises, obviously with the condition the property is left in similar condition before remaining funds were disbursed. But that was always for short term, occupant just needed time to move etc. I wouldn't mind doing so IF the tenant was actually paying rent and/or was leaving in the near term, but i don't want to deploy capital to sit for 4-5 months before i can get started on renovations. Just by the context of the conversation with the seller, i wouldn't be suprised if the tenant 1. doesn't leave on time and needs evicted and/or 2. trashes the house on the way out the door.

Quick Sale ARV: $90k
Repairs: Unknown. I'm viewing the house tomorrow. The seller says it's "livable".. but we all know what that could mean

Seller initially asked for $50k, i declined as it's 2 hours from me in a very rural location; however two months later the seller recontacted me and is now BEGGING for an offer.

Offer $25k cash and take the risk?
Offer Seller Financing with deferred payments?

What would YOU do?

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Roy N.Pro Member
Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
9y

We had a situation similar to that: Seller wanted written into the Agreement of Sale that tenant in one unit would not have a rent increase for 24-months {their rent was not free, but was 25% below market}.    We sized up the situation - unit could not be re-rented w/o a substantial renovation - and agreed to the 24-months of frozen rent in exchange for a further reduction in the sale price by the amount of 24-months rent at market rate.   The vendor accepted.

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  • Roy N.Pro Member
    Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
    9y

    We had a situation similar to that: Seller wanted written into the Agreement of Sale that tenant in one unit would not have a rent increase for 24-months {their rent was not free, but was 25% below market}.    We sized up the situation - unit could not be re-rented w/o a substantial renovation - and agreed to the 24-months of frozen rent in exchange for a further reduction in the sale price by the amount of 24-months rent at market rate.   The vendor accepted.

    2Reply
  • Troy Gravett
    Investor · Torrance, CA · Member since 2013 · 144 posts · 73 votes
    9y
    have them seller finance the entire thing, but payments dont start until tenant vacates. no money sits in escrow and you're only out of pocket taxes, insurance, and eviction if needed.
    2Reply
  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    9y

    Make your offer contingent upon being vacant at COE - - the eviction is incumbent upon the seller.

    0Reply
  • Greg H.Pro Member
    Moderator
    Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
    9y

    @Jeff B.

    What would you evict for since the tenant and seller have an agreement in place to stay rent free until June 17 ?

    I would only by it at a ridiculously low number that compensates you for no return on your investment for the next 18 months or so AND the time,money and effort it is going to take to get her out in June 17.  People living for free more than likely are not going to move when the agreement is up.  Additionally, make sure the agreement with her is in writing and details any requirements for upkeep.  The biggest concern without something in writing would be for her to claim a "life estate" and you subsequently having to litigate

    1Reply
  • Account Closed
    OP
    Real Estate Investor · Shelton, WA · Member since 2013 · 369 posts · 639 votes
    9y

    @Troy Gravett Thats definitely what im leaning towards

    @Jeff B. & @Greg H.  I guess that was my question (and for my lawyer tomorrow), is the lease even binding? How would you enforce a lease/evict a tenant who is not obligated to pay rent? 
     

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  • Greg H.Pro Member
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    Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
    9y
    Originally posted by @Account Closed:

    @Troy Gravett Thats definitely what im leaning towards

    @Jeff B. & @Greg H.  I guess that was my question (and for my lawyer tomorrow), is the lease even binding? How would you enforce a lease/evict a tenant who is not obligated to pay rent? 
     

    If they possess the property after the expiration of the lease, in most states you can evict just seeking possession of the property with no monetary judgment sought 

    1Reply
  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    9y
    Originally posted by @Account Closed  I guess that was my question (and for my lawyer tomorrow), is the lease even binding? How would you enforce a lease/evict a tenant who is not obligated to pay rent? 
     

    Without an agreement specifically with you, they have no rights to occupy and thus it can be said they are trespassing and/or squatting.

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  • Greg H.Pro Member
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    Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
    9y

    @Jeff B.

    That is inaccurate.  Any lease agreement(the lease being for $0 has no bearing) must be honored by subsequent owners.  Some states allow for termination of leases to occupy(few) but that is not the case here.  The lease agreement will have to be honored.  Cash for keys is an option however with a tenant paying $0 there would appear to be little motivation from the tenant's standpoint

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  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    9y
    Originally posted by @Greg H.:

    @Jeff B.

    That is inaccurate.  Any lease agreement(the lease being for $0 has no bearing) must be honored by subsequent owners.  Some states allow for termination of leases to occupy(few) but that is not the case here.  The lease agreement will have to be honored.  Cash for keys is an option however with a tenant paying $0 there would appear to be little motivation from the tenant's standpoint

     Your are correct -- IF IT IS IN WRITTING - - did I miss that point?

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  • Michaela G.
    Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes
    9y

    But if the lease runs out end of June, wouldn't it be possible to not renew the lease and after that evict for tenant hold-over, if she doesn't move out?

    But I do believe that this might be a difficult battle. Not only is she a tenant that doesn't pay rent, but she was the live-in girlfriend of the owner. How long was she the live-in? Was she maybe a common-law spouse and therefore maybe have some equity?

    I don't think I'd touch this without having spoken to an attorney first. Many things can go wrong.

    1Reply
  • Wes Brand
    Investor · San Francisco, CA · Member since 2016 · 314 posts · 153 votes
    9y

    You may be in some luck depending on the lease, and you'll have to talk to an attorney, but contracts need consideration from both sides to be valid...her paying $0 may give you a way to invalidate it immediately. Or it may not. 

    1Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    9y

    Contracts with no consideration are typically not valid. A lease is a contract, so there needs to be consideration for use of the premises.

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    2Reply
  • Michaela G.
    Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes
    9y

    I would talk to her and get a feel how she feels about the rental situation. It'll give an idea whether she might fight it or just needs a breather to grieve. 

    While you may say that legally she doesn't have a standing, because there's no consideration, I don't think I'd be a hard *** and try to force the issue ahead of time. She did just lose a partner and I think the best way to negotiate is to create a win-win deal. The seller is also still grieving and might want to make sure that the father's wish is being fulfilled. 

    If I talked to the GF and felt good about it (of course things can change) then I would just take those extra months into consideration for my offer price. And maybe something can be held back in escrow for the seller, that will be released once the GF has moved out.

    2Reply
  • Jonathan C.
    Realtor · King of Prussia, PA · Member since 2010 · 15 posts · 1 vote
    9y

    When I hear June 2017, I think kids and end of school year. It's first reason that comes to my mind for family pushing for June leave date. So maybe it won't be that hard to get her out once summer comes if that's the case.

    You could also come up with your offer, deduct Fair Market value of rent and estimated eviction costs and lost months during the eviction to get to your offer amount.

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  • Greg H.Pro Member
    Moderator
    Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
    9y

    While I agree that a contract needs to have consideration it could very well come in a non monetary form such as house sitting, mowing the lawn or any other multitude of ways

    Additionally, we are talking about a $20,000 or so purchase price.  The cost to litigate and then evict would not be cost effective and the time to do so could exceed June 2017 move out date 

    Like I said, I would move forward at a price that compensates me for my time along with an agreement that clearly sets forth the termination date of the lease. I would fully expect to have to evict at that time as people tend to become very fond of "free"

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  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    9y

    @Account Closed I signed a $1 per month rent agreement on my personal residence that allowed me to rent the home for two months after they purchased it from me. My home sold faster than expected and they wanted to close faster than I was ready to move. They proposed letting us stay for two months for free. Their lawyer drafted the agreement for $1 per month because he said you couldn't do a contract for $0 rent. I have had similar on purchase agreements were we agree to buy personal property in a home for $1. My understanding is for a contract to be binding, something of value needs to be exchanged.

    Essentially the current owner was pressured into a contract where he gains nothing of value. At the time I am sure he didn't consider expenses such as taxes or insurance. I cannot imagine if this went to court that the judge would be sympathetic to the tenant. Even if the judge would modify the rent to "fair market value", that would be a step in the right direction. 

    The question I would ask is what could happen if you tried to evict her. Can a judge assign damages to a tenant if they feel they are being unfairly evicted? 

    This is an interesting case. Please keep us updated on what your lawyer says.

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