Under contract & tenant with expired month to month lease

Member since 2021 · 7 posts · 1 vote

I am under contract on an off market purchase and just received a copy of the tenant’s month to month lease. The lease has a date range of 11/21-11/22. Tenant is current in payment but doesn’t pay on time.

I am waiting to hear back from my attorney but curious if anyone has encountered this before. Does this mean my tenant doesn’t have a lease and what will I need to do to get them out? Is this a situation I need to walk away from?

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Corby GoadeBusiness Member

Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes

I do tons of deals like this. Generally, the lease just rolls to month to month and all of the terms stay the same. There's no way to tell if this is a good tenant who just needs some coaching or maybe they're not such a great tenant who you'll want to serve notice to.

A couple things-

-SInce they are month to month, you don't have to evict them, just give them notice that you won't be renewing the lease. In most situations, you can have them out in 30 days.

-If this tenant (or their lease) makes or breaks the deal for you- it's not a deal. I know this is an unpopular opinion on BP, but whatever the current tenant situation is and whatever the current lease says is totally inconsequential to me as a long term investor. If I'm holding a property for 10-30 years and there's a tenant that might be a nuisance for a few months, that doesn't even factor in to my consideration one tiny bit.

Best of luck!

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Mike Dymski
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
3y
My lease agreement automatically turns to month-to-month after the term ends...and that's your situation whether the lease states it or not.

Some owners keep late payers and others send notice to not renew. I'm in the latter camp...been burned too many times by late payers becoming nonpayers (plus, I got into real estate to make life better, not more inconvenient).
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Nathan GesnerBusiness Member
Moderator
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
3y
Quote from @Kelly Secosky:

When a lease expires, assume it is a month-to-month lease. That requires you to give them a 30-day notice of termination in North Carolina. https://www.nolo.com/legal-enc...
Do yourself a favor: buy "Every Landlord's Legal Guide" by NOLO. Written by attorney investors, it's full of practical advice pertaining to management of investment property, has sample forms that can be edited, and - most importantly - they tell you what your primary state laws are and where you can read them. It's updated every year and is the best $40 you'll spend as a Landlord. There is one book for 49 states and a separate book for California.

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Jon A.
Asheville, NC · Member since 2017 · 385 posts · 274 votes
3y
Why would you walk away at this point in time? Didn't you know the property was occupied by a tenant when you went under contract? I ask because if you did know this then nothing has changed and you should proceed with the purchase as you had already planned. If you did not know this then the seller misrepresented the property. Month to month tenancy in nc can be cancelled by either party with 30 days notice on or before the due date of rent. You can also start to enforce a late payment penalty if the previous owner did not. Are you getting the security deposit from the previous owner because that should be included in your closing. At least, with that you have something going forward for repairs and non payment of rent if needed. I would go ahead and download nc tenant/landlord state laws and print them out and keep them on your desk.
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Adam SchneiderPro Member
Lender · Raleigh, NC · Member since 2012 · 957 posts · 639 votes
3y
Kelly, Is this for NC? Read up on NC GS 42. It will provide all of the rules on the notice requirements for a MTM.
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Kelly Secosky
OP
Member since 2021 · 7 posts · 1 vote
3y
Thanks Adam! I have read the rules but I’m definitely still learning! My main concern is understanding that after a month to month contract expires, does that mean anything or is it just the same as before - ie is the month to month contract still valid? I think my confusion comes from the fact that the original month to month contract had a year long effective date on it. Just trying to make sure all bases are covered on this one before I close.
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David Greathouse
Real Estate Agent · Member since 2022 · 31 posts · 25 votes
3y
I assume you bought the property because the numbers made sense, not because the tenant made sense! You can replace the tenant and probably get better rents (assuming they weren’t at market rent).
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Corby GoadeBusiness Member
Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
3y
I do tons of deals like this. Generally, the lease just rolls to month to month and all of the terms stay the same. There's no way to tell if this is a good tenant who just needs some coaching or maybe they're not such a great tenant who you'll want to serve notice to.
A couple things-
-SInce they are month to month, you don't have to evict them, just give them notice that you won't be renewing the lease. In most situations, you can have them out in 30 days.
-If this tenant (or their lease) makes or breaks the deal for you- it's not a deal. I know this is an unpopular opinion on BP, but whatever the current tenant situation is and whatever the current lease says is totally inconsequential to me as a long term investor. If I'm holding a property for 10-30 years and there's a tenant that might be a nuisance for a few months, that doesn't even factor in to my consideration one tiny bit.
Best of luck!
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Cory J ThorntonBusiness Member
Real Estate Agent · Raleigh, NC · Member since 2021 · 240 posts · 281 votes
3y
@Kelly Secosky - You've already been given some sound advice. Start with the advice you have been given, then I have a few thoughts to layer into the discussion.
I have purchased several properties that either didn't have leases or had expired leases. In most of those cases the tenants didn't pay on time (which is why we got them at a good price) I have also taken over properties as a property manager that had tenants with bad habits. If the tenant takes good care of the property, wants to stay in the property, commits to on time payment, then I typically offer them a new lease, on a one year term, at an improved rate and with very clearly defined expectations.
If they are willing to pay the rents we need, then we will offer them a one year lease. Usually we end up increasing the rents by 50% or more on the first lease and as many as half of the tenants usually stay. Last year we took the rent from $600 to $1050 on a tenant (which was still a very fair lease rate) and they stayed and pay on time.
Your lease is your template for how you manage. Once it is in place, with the current tenant or whoever replaces them, don't deviate from the terms. If you do, then that signals to the tenant that it is okay to pay when they want to, instead of when they are contractually required. If there is a late fee after five days, then charge it and collect it. If by a certain date they have not paid (usually the 10th) then send them a pay rent or quit letter. If they do not satisfy the terms of the letter in the amount of time given, then start the eviction process. All of this should be a standard process you use for management and should be supported by your lease.
If I had to guess, I would say only half to tenants inherited with bad habits create new habits when the lease terms are property enforced.
If you are self managing this property and replace this tenant, then the number one thing you can do to help ensure a good self management experience is build a screening process that helps net a quality tenant.
Best of luck on your investing and learning journey. If there is anything I can do to help, feel free to connect and give me a shout.
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Kelly Secosky
OP
Member since 2021 · 7 posts · 1 vote
3y
Yes- I’m the process of buying because the numbers make sense. We will want the tenant out as we need to do significant repairs. Their original month to month lease (that is now expired) says 30 days notice but then I see in the nc rules that month to month is 7 days notice. However, their month to month lease is technically expired. I would like them out as fast as legally possible. Just trying to avoid any extra legal battles to get tenant out.
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Account Closed
Investor · Chicago, IL · Member since 2014 · 169 posts · 29 votes
3y
Agreed with what @Corby Goade said. If the deal itself is good enough for you to move forward then do it. MTM tenants can generally be dealt with pretty easily if you follow the rules. Might seem like a pain up front but after they're gone you'll be in a much better place.
1 Reply
Kelly Secosky
OP
Member since 2021 · 7 posts · 1 vote
3y
Thank you for your thoughts! Purchasing with tenant in place is definitely new for me. My other property was vacant at close. I appreciate your response!
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Corby GoadeBusiness Member
Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
3y
Quote from @Kelly Secosky:

Yes- I’m the process of buying because the numbers make sense. We will want the tenant out as we need to do significant repairs. Their original month to month lease (that is now expired) says 30 days notice but then I see in the nc rules that month to month is 7 days notice. However, their month to month lease is technically expired. I would like them out as fast as legally possible. Just trying to avoid any extra legal battles to get tenant out.

I don't know of anywhere in the country where it's legal to give a tenant 7 days notice. State and local laws will override what a lease says if the lease is more restrcitive than state law. Almost everywhere, 30 days is the minimum that the law allows.
Check with your state attorney general- they usually have a quck reference guide for tenant landlord law and it will give you the highlights on what you can and cant' do.
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Theresa HarrisPro Member
Member since 2019 · 15k+ posts · 11k+ votes
3y
I can't see 7 days being accurate, 30 days is more typical (sometimes longer). Make sure you get the security deposit and prorated rent. I'd also let the tenant know as soon as you close that you will be giving them notice. too often regular late payments turn into no payments.
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Cory J ThorntonBusiness Member
Real Estate Agent · Raleigh, NC · Member since 2021 · 240 posts · 281 votes
3y
Quote from @Kelly Secosky:

Yes- I’m the process of buying because the numbers make sense. We will want the tenant out as we need to do significant repairs. Their original month to month lease (that is now expired) says 30 days notice but then I see in the nc rules that month to month is 7 days notice. However, their month to month lease is technically expired. I would like them out as fast as legally possible. Just trying to avoid any extra legal battles to get tenant out.

If you are under contract, will the current landlord let you send notice to the current tenant before you close? That way the clock starts now, instead of once you take possession.
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Jon A.
Asheville, NC · Member since 2017 · 385 posts · 274 votes
3y

@Kelly Secosky It is my understanding in NC the 7 day notice to vacate is for the tenant not quitting the property. Your first step would be to a notice of non renewal of said lease and that would require 30 days at the time the rent is due. Then, if the tenant does not choose to leave on their own and in time, you can issue the 7 day vacate notice to vacate as their last option before the eviction process. I am not a lawyer and this is not legal advise but that is my understanding of it.
non renewal of lease at rent due date=30 days
if they don't leave then 7 day notice to vacate before you start the eviction process=7 days
total=37 days then you can start the process of eviction if they have not left and turned over the keys to you
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Kelly Secosky
OP
Member since 2021 · 7 posts · 1 vote
3y
Thank you! This was the 30 vs 7 day explanation I was looking for. I appreciate your insight!
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Jane S.
Flipper/Rehabber · Colorado Springs, CO · Member since 2016 · 502 posts · 167 votes
3y
get contact info for tenant... Facebook, google phone directory etc. Then start a conversation as the new owner. Don't gp there in person until youve had a phone talk.
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Pat LulewiczBusiness Member
Realtor · Raleigh NC and Greensboro, NC · Member since 2019 · 396 posts · 393 votes
3y
@Kelly Secosky if you aren't going to close before the end of the month, I would recommend you request the current owner (seller) provide a 30-day notice to the tenant BEFORE March 1st. Otherwise, you'll have to wait until end of March (before April 1) to give notice and they won't be out until April 30th under that sequence. Sellers will sometimes push back on this as they don't know if you'll close and you are asking them to get rid of a paying tenant...if so, offer them some more due diligence (if that's part of the deal, or introduce non-refundable $) to compensate for the potential of lost rent if the tenant vacates and you don't close.
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Gavin WelchPro Member
Real Estate Broker · Lakeland, FL · Member since 2011 · 305 posts · 181 votes
3y
Not sure about North Carolina, but in Florida, you have to give a month to month tenant at least 15 days notice. That being said we typically wait until after they have paid that months rent (by the 5th) and serve them with a notice of non-renewal of the lease. We just explain that they have about 3 weeks to move out.
The best route is to have the seller remove the tenant before closing. That is one less thing you (the buyer) has to worry about, and hold-over tenants (from old owner) are typically a pain in the butt.

Good luck
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Jeff CopelandBusiness Member
Real Estate Broker · Tampa Bay/St Petersburg, FL · Member since 2015 · 1k+ posts · 2k+ votes
3y
Quote from @Kelly Secosky:

Thanks Adam! I have read the rules but I’m definitely still learning! My main concern is understanding that after a month to month contract expires, does that mean anything or is it just the same as before - ie is the month to month contract still valid? I think my confusion comes from the fact that the original month to month contract had a year long effective date on it. Just trying to make sure all bases are covered on this one before I close.

The original lease was not month to month, it was a one year lease. That lease has expired.

Now the tenant is month to month. You can think of it as a one month lease (as opposed to one year) that resets every month, and can be terminated (or changed) by the landlord with 30 days notice. It can also be terminated (but not changed) by the tenant with 30 days notice.

You do bring up a good point though, in that you still want to thoroughly review the original expired lease. I've seen old expired leases that had odd clauses in them such as a 60 day (instead of 30 in NC, or 15 here in FL) notice requirement, and a judge will normally defer to the old written lease if there is a conflict (for example, it you gave them a 30 day notice of termination, they might have a leg to stand on in court if they chose to argue that the lease, which was the basis of the tenancy, required 60 days notice, even though it has since expired).
Even though the written lease has expired, you don't want something buried in it to catch you by surprise.

But this situation is definitely not a deal killer. I would much rather take over a property with month to month tenants than have 6-12 months left on a lease with a tenant I know nothing about. It gives you maximum flexibility.

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James Register
Real Estate Coach · Goldsboro, NC · Member since 2011 · 34 posts · 2 votes
3y
I would talk with tenant and find out why he/she always make payments, instead of meeting the due date as expected. Maybe, we can work out a bi-monthly plan just for a couple of months to help the tenant get on track
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