How do lease transfer after purchase of tenant occupied multifam

Question

Dear fellow members,

I am seeking your help in (and possibly if you could help with docs or contracts I need the seller of a multifamily house to sign off so that a proper transfer of lease that the seller has with the tenant occurs so that it is now a lease between me (buyer of the property) and the tenant. We are trying to minimize or in the best case scenario not need the tenant to sign any paperwork.

My questions are;

1) The lease states the sellers address and specific details on where the monthly payment need to go.

2) The seller has retained a security deposit from the tenant. How will that transfer occur?

3) The closing of this sale will occur around the July 5th so it is mid month. How will the rent distribution occur?

4) When does the signing of these documents happen? Escrow?

Thanks in advance for a detailed response. I do apologize if these questions are naive, but I am doin this for the very first time. and the real estate is not helpful at all. He just says "the lease will automatically transfer at the point of sale". I want to be sure to get the right documentation in place.

David M. · Answer

@Carlos Lez

Basically all of the above. It is interesting, however, that the security deposits show up as a credit on the closing statement.  I guess it might be a State-specific thing.  One aspect that hasn't been mentioned Estoppel letter/clause.  This asserts that all the lease information is correct.  Maybe its a NJ thing...  For example, you don't want the seller to hand over say $1000 in security deposit for Unit A, and later find out that the tenant says its was really $1500.  Now you are screwed.

Good luck.

Drew Sygit · Answer

Don't assume all this gets done by attorney/title company! You should verify.

1) You need a letter from seller assigning the leases to you

2) SD's are usually shown as a credit to you on the Settlement Statement - basically it's deducted frm the amount you need to pay at closing.

3) Rents are prorated

4) At closing

Make sure you have the info on the below list by closing!

For each occupied unit:

• current lease, move-in checklist, etc.
• Current rent ledger or rent roll for each tenant.
• Corresponding rental application & identification for each tenant.
• Signed Assignment of Property Management, Leases & Rents.
• Rental registration/license for each property.
• All notices, attorney contact information, etc. for any eviction(s) in process.
• Clear picture of all property keys, named, so know which lock/unit/building they are for.
• Transfer of security deposit(s).
• Notification to tenant(s) introducing you as their new landlord.

Alecia Loveless · Answer

@Carlos Lez The leases, prorated rent snd security deposits all should transfer at the closing. The bank’s lawyer or the lawyer conducting the closing should draw up an assignment of leases transferring them over to you legally. At least this is how it happens in my state. Check with your realtor.

You will need to write the tenant(s) an introduction letter telling them who you are, if you don’t want them to know who you are you should be able to say something like there is a new owner to the property, XYZ Property Management will be Managing from now on. How  to contact whoever is managing the building whether that’s you or a property manager, who and where to send the rent to, how to let management know about problems, and anything else you would like tenants to know about.

I have been emailing this letter and mailing it to them.

I hope this helps and hopefully someone from California reaches out.

Carlos Lez · Answer

I should add that the purchase is in Palo Alto, Santa Clara County, California.