Closing On Our First Property! No Contracts in Place! Help :)

[Jennifer Baldassari]

Hey Bigger Pockets,

My husband and I are closing on our first rental property, a duplex.  The former owner was pretty much hands off and let the property manager run the show (to the ground).  Currently, both sides are occupied by tenants who do not have contracts in place.  Even if there were contracts place, you can be sure they'd be in violation of those some how, some way (it is that bad).

These will be super newbie questions, I hope you don't mind.

If there were contracts in place with the former owner, would these follow to the new owner or are we allowed to re-create what we want for now our property.

Since there are no contracts (unless something appears out of the blue in the next few weeks), does this allow us the freedom to write up our own contract, submit to the tenants and if they don't sign (which I'm sure they won't), how long before they must leave?

We are in Illinois.

We don't necessarily want them out for cash flow/capital improvements needing done.  We would just like one side to get rid of their 5 pets (who all piss inside the house and do not go outside) and the other side to stop housing a multitude of people who are causing issue around the place and start paying their rent!  These are just a few things going wrong with the tenants...

The upside to all this... we are getting the property for a song. It's the only rundown property in a beautiful historic district.  The current rents are well below market.  There is only UP from here!

Please let me know where you would begin with all this!

Thank you!

Jennifer

[Nathan Gesner]

You should ask for an estoppel. See details below.

Any existing, written contract transfers with the sale of the property and you must honor it until expiration. You can negotiate a new lease if the Tenants are willing to sign it.

I would not do anything to correct the current tenants. My focus would be 100% on termination and removal. You will never turn them around, you will never get them to market rate. Just get them out, clean up the property, and start fresh.

Your offer to purchase should include a requirement that the Seller provide all documentation and agree to sign an estoppel certificate (also called estoppel form or agreement). The estoppel is a form filled out by the tenant, then confirmed by the Landlord, then accepted by the Buyer. It's supposed to ensure there are no surprises after closing. For example, I often see Buyers purchase property thinking there is a $1,000 deposit but then the tenant claims it was actually $2,000 because they paid the last month's rent. How will you know? An estoppel certificate fixes this problem.

Some things it may include:
1. Tenant name, contact information, and address
2. Occupancy date
3. Is there a written lease? If so, review it to ensure it matches the estoppel certificate
4. Are there any modifications to the written lease?
5. Are there any verbal agreements or arrangements between the current Landlord and Tenant?
6. Current lease term (expiration date, month-to-month)
7. Current rent rate
8. Rent due date
9. Security deposit amount
You can find plenty of examples by searching for "tenant estoppel certificate doc" or exchange "doc" with "pdf" for more options.

Here is an example and explanation: Sample Estoppel

Some have a lot of legal jargon but this document does not need to be so detailed. This is an important tool for anyone buying a tenant-occupied property.