In a few weeks we will be closing on a duplex where both sides are rented by one individual with a month to month lease.  The young lady is a nurse and is using the other side to "sub-lease" to an elderly person where she can provide care for them by being right next door.

We are working on our new lease as this will be our first rental investment purchase.  The current landlord was okay with this arrangement, but we aren't sure this is a good idea.  Subleasing and running businesses don't seem to be suggested practices with leases.  

Would you allow this arrangement?  What are your thoughts and concerns?  

We had a similar situation. Tenants have been there 6 years, the husband is a contractor & always had an office in the home. When Covid hit the wife lost her JOB at the local school as a class room aide. She is NOW a psychic medium & apparently quite successful. The big old 1830's home is apparently haunted so I guess it was a natural fit

We re-wrote the MTM as a Commercial NNN, raised the rent significantly, insisted on them holding commercial liability coverage. We required proof of insurance in the form of a certificate of insurance, naming us as the certificate holder & they complied. The town gave them approval for the in-house business.

Good tenants, they always direct deposit on-time & take very good care of the place. However, with prices through the roof we intend to sell it this year, giving them 1st refusal with the possibility of us holding the note.

@Pat L.   What is a commercialundefined

I love a tenant that's doing this creative business rather than a lazy tenant. If they can move to our place I'll be happy.

herte ya go...

An NNN lease is the most common type of commercial lease and is commonly called a triple net lease. On an NNN lease, tenants pay additional expenses in addition to the lease fee, to the landlord or lessor. The NNN fees includes property taxes, property insurance and common area maintenance for a building (CAM).

John,

Definitely have a discussion with your Insurance Agent.  The tenant is essentially running an assisted living facility in the other unit.  It may require a commercial policy rather than the conventional Dwelling/Fire policy (AKA Landlord policy) written on most rented 2 families.  You may want to consider an Umbrella policy to get additional Liability coverage.

As the building owner you may be required to bring the unit up to code for the commercial use.  The codes may also require you make the unit ADA compliant.  I would check into building codes and fire codes that are applicable.

Check with your attorney to see if renting to the Elderly tenant directly and letting her make sepparate arrangements for care with the other tenant would lessen your liability.

Before closing on the property, you will definitely want to review the leases for each existing tenant to verify the income and what expenses are the tenant’s responsibility.
Does the inherited tenant have a current lease in place and do you have a copy of it? Check with the local laws, but I believe that you would have to honor that existing lease first before putting yours in place. Even if it is an expired lease, you should have gotten a copy before going under contract.

@Jimmy Chao yes!  I have one and have discussed the arrangement with the current owner.  He was simply happy the one tenant pays for both leases.

@John Mocker Great ideas, I'll startwith my insurance agent and 

If they are running a business in the home, you need to ensure zoning allows it, that they are properly registered with the City/County (if necessary), that the carry the appropriate insurance, and you should be charging them a higher rate because they are using your property to profit.