Carlsbad, CA · Member since 2010 · 1k+ posts · 1k+ votes
Hello all,
So I have this 4-plex under contract. The unit was fully rented out until a week ago one of the tenants had to move out to take care of some family. The seller without checking with me filled the place with a new tenant starting May 1, and we are supposed to be closing around that date. My agent says that they are not supposed to do that. My agent is gonna check to see if it's still a valid contract, but what do you guys think? I am just worried that he may have given the place to any one to rent the place and now might be dumping his problem on me.
I understand that the place was rented out when I looked at it, and he just replaced one tenant with another. But I feel like he should have checked with me while the property was under contract. You guys have experience with this?
Real Estate Investor · New York, NY · Member since 2008 · 105 posts · 69 votes
16y
If the tenants payed in cash, he should of issued receipts. Ask for copies. You can also ask him to fill out IRS form 4506-T which is a request for a copy of his tax return. He should of listed all income obtain from the property.
When closing, be sure to get the security deposits. Many landlords get stuck having to pay this out once a tenant moves or has to be evicted because they didn't collect it from the previous owner.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
16y
Still his property until you close. Unless its specifically addressed in the purchase contract, I think he can fill a vacancy.
You might get estopple letters from all the tenants before you close. These would re-iterate the key terms of the lease. Get them signed by the tenants. You'll want copies of the actual leases, but this might help avoid a "yeah, I signed that lease, but then we verbally agreed to a 10 year, $100 a month lease" situation.
Real Estate Investor · Lake Worth, FL · Member since 2009 · 263 posts · 92 votes
16y
Max, just as a courtesy he should have informed you of the new tenant.
Barring any unknown contingencies I would go by and talk to the tenant and ask some approval questions you will be using for qualifying the tenants. If they check out and seem like they will work out then I see nothing to stop the deal unless you were trying to rehab or sell the units after you closed.
If you don't accept this tenant then you will need to work with the current owner to relocate the tenant (moving costs) may be involved. Asking the tenant to relocate and agree to cancel the lease (some incentive will more than likely be needed.) Or tell the seller that he is in breach of the contract and that if the situation is resolved in a reasonable amount of time you will take your earnest money and shop elsewhere.
Real Estate Investor · Lake Worth, FL · Member since 2009 · 263 posts · 92 votes
16y
Jon is right that it is his property but for multiplex or any property that is going to be leased when you purchase it a clause should be added that from acceptance of the contract until close it is agreed that any new tenant needs both seller and buyers approval.
Carlsbad, CA · Member since 2010 · 1k+ posts · 1k+ votes
16y
Jon and Jeff-
Thanks for the prompt replies. My agent spoke with the seller agent about how the seller qualified the tenant. The seller agent said the seller is willing to provide us any information about the new tenant that we may have. What sort of information should I ask for about the new tenant?
You don't want to get too upset until you see who he put in there and what the rental agreement is.
In future, put it in your offer that the seller can not place any new tenants into the building or sign any new leases or rental agreements after the offer has been submitted and accepted. Unless you approve of the new tenant, that is (in writing).
Also that you have approval of existing leases.
Not common, but it has happened that a seller will give a 5 year lease to a relative for 10% of fair market rent. The lease goes with the property, so the buyer is stuck.
Carlsbad, CA · Member since 2010 · 1k+ posts · 1k+ votes
16y
Thanks for the reply. In the contract we had put a contingency that the seller will provide the proof of rent payment, but he's saying since some of the tenants pay rent by cash, he has no proof. He's agreed to sign an affidavit stating that the rents are received on time. Is that normal? How can I have him prove the rent payment if he's receiving the rent in cash? Is there anything (related to rent or anything else) I need to talk about with the tenants staying at place? Thanks!
Real Estate Investor · New York, NY · Member since 2008 · 105 posts · 69 votes
16y
If the tenants payed in cash, he should of issued receipts. Ask for copies. You can also ask him to fill out IRS form 4506-T which is a request for a copy of his tax return. He should of listed all income obtain from the property.
When closing, be sure to get the security deposits. Many landlords get stuck having to pay this out once a tenant moves or has to be evicted because they didn't collect it from the previous owner.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
16y
Don't worry about the past. He's made claims to you about the lease terms, right? Get the estopple letters so YOU have a commitment from the tenants about the lease terms. Hold them to the lease terms. If they don't pay, evict. If they look at the letters, which should be based on what he has told you (hopefully, in the form of the written leases) and say "that's not our agreement" you know you have a problem.
If he has done a stupid lease (10 years at 10% of market), it will come to light when you try to get the estopple letter. I would think that would be grounds for terminating the contract.
At the very worst if this turns into a disaster, walk away.