Old owner extended lease without disclosing

5 Replies

I bought a property in Sacramento CA last year.  One of the tenants rented an apartment right after we got into contract for below market.  His rent was $600 for a 2BR 1BA, market would have been at that time about $850 by their marketing package.  We are currently able to rent identical units for $1000.  The lease that was given to me in escrow gave an end date of May 30, 2018.  But when we tried to raise his rent, the tenant said that his lease went until June 1 2019, and gave us his actual lease.   The old manager confirmed that this was the correct lease.  He was given a longer lease for doing "Favors" which I believe was painting and cleaning his unit and maybe a few other things.

But this extended lease was not disclosed during escrow.  I am wondering what my options would be here.  I do not know if this was done by the property manager without the owner's knowledge.  I think that the property manager just did not want to pay for renovating a unit that was going to be sold in a few months.  My damages are between  $4800 and $3000 depending if I use current rents or the stated market rents that they gave.

@Daniel Antonetti

In general, not much you can do after closing.

If you had made specific requests about the tenants in your sales agreement then you might be able to go after the previous seller for not complying.

But, if you didn't have specific language in there, the owner is still able to renew leases.

Even if you had Estoppel Letters, it wouldn't prevent the seller from doing something sneaky at the last second like signing a lower rent lease in exchange for doing fixes the seller didn't want to deal with out of pocket.

Just curious . Where you able to do an estoppel when this was in escrow?

@Jo-Ann Lapin We had the lease, which was just signed.  But after they gave us the old lease, they extended it with the tenant at same rent by 1 year.

@Christopher Phillips the issue is not that they extended the lease, it is that they never disclosed that they extended the lease.

@Daniel Antonetti

I don't believe that they have to disclose it.

Poor form? Yes. Especially if you had other plans for the unit like moving into it.

Your agent should have requested a "tenant estoppel certificate" during escrow.  This is a normal and crucial step in virtually every sale of tenant-occupied property.  The landlord/manager and the tenant both sign (in CA at least) and it guarantees the existence of a lease, it's terms, and stops anyone from later claiming any other lease or lease terms exist.  It would NOT be smart to ever purchase a tenant-occupied property without a tenant estoppel certificate signed by the tenant.  These situations are why it's important.  If you don't have a tenant estoppel, then you are likely bound to the current renewed lease terms.

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here