No Lease Agreements?

7 Replies

I have a 6 unit multifamily property under contract and the owner is unable to provide me with existing lease agreements. I did manage to speak to some of the tenants and some have been there over 20 years.  The rents are all below market with plenty of opportunity to raise rates when they move. The plus side is that even if they stay my return is good given my existing purchase price. 

The question however is how do I handle things with the tenants? Should i simply have the property management company ask them to sign a new lease if/when i close? 

Hi @Johnathan Norman ,

Congrats on the new property! 

And yes, If I were you, I would have the management company have the tenants sign a lease upon closing. Then I would probably make some improvements on the property and give the proper notice (per the state's requirements) to raise the rent, if that's what you intend to do. Tenants often expect an increase when there is a new owner, and if there's improvements it helps justify the raise and sets a good precedent. 

Regardless of the rent, the tenants would probably appreciate the lease since it guarantees that you as the new landlord cannot raise the rent every month.

Best,

Dave

@Johnathan Norman , I would try to get an affidavit from the seller that there are no lease agreements.

Get estoppels from tenants.

You may want to check your state law to see how that needs to be handled. Speak to an attorney if unsure.

The statute of frauds in each state typically requires that leases of a certain length be in writing. The length varies state by state. So if I buy a property where there is no written lease in place, I merely tell them that state law requires that the lease be in writing.

I would definitely get estoppels before close to verify the rents, deposits and there are no existing leases.  Without that you are at the mercy of an honest tenant or seller, both rare animals.  After close don't sign leases before you decide if you will raise the rents and by how much.

Offer each a new M2M with rents increased to full market. Term leases are defiantly not required, never a good idea, as these tenants have been on M2M all along.

I can't speak for Washington, but here in Texas a 6 unit would be a commercial contract. That gives you a much longer feasibility period to determine whether or not you want to continue with the contract.

The one thing I've seen over and over is when there are long-term tenants, they are always paying well under market rates.

Whether or not there are written leases, you should always ask for estoppels. The estoppel is a written affidavit from the tenant stating what they believe are the terms of their tenancy. An estoppel prevents any future claims of "the previous owner and I had a side deal that blah blah blah."

Starting off as the new owner and wanting to "get things right" so to speak will probably get you into good graces with these long existing tenants. Couple a new lease contract with some cleanup and/or improvements and you'll be sitting right. Maybe even ask to check out their unit and make a list of some basic things they might have been ignoring. If you come in and get their carpets cleaned and fix a leaky sink they'll likely not have a problem with the increased rent.

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