An applicant with a unique request, wants to sign 5 year lease.

43 Replies

I have a unique request from an applicant for my SFR, who is an artist, and wants a five year lease.

His justification is he is an artist, wants a long term lease, to lock in the rent. He and wife, both artists, are handy people (which remains to be seen) and wish to decorate, renovate the home - the current home is a 60s art deco style home and have not had a major upgrade (think pink and blue tiles in the bathroom).

He does not want to risk my selling the home next year to someone else and the lease expires, nor me raising rent or wanting to rent to someone else. He is willing to sign a 5 year lease in exchange, use his creativity to upgrade the home, will agree to repair and take care of maintenance on anything except structure, roof and air conditioning. Appliances break, clogged tub, lawn mowing, landscape, etc...he would take care of free of charge.

Husband wife and 1 cat in a 3 BR/2B house. Give them the key and turn them loose.

Now, I am not a fan of long term leases, as it does not benefit the landlord, and early termination has the same penalty as a short term lease. I can't raise rent. Giving them the liberty to "upgrade" scares me. I don't know what will happen. We are not talking about new drapes. We are talking about changing counter tops, ripping out backsplash, redo tiles in the bathrooms etc...

HOWEVER, I can't say I am not intrigued.

IF IT WORKS. Five years of minimum maintenance calls, no more paying the lawn mowing, and possibly at the end having a better and improved home to rent.

On their end they get security of a long term lease, no rent increases, and "some" freedom to make it their home.

What are your thoughts? GO? NO GO? MAY BE?

What should I watch out for? For one thing I have to see their portfolio, what their current and previous homes look like. I also need to approve the work they will do.

What one person calls in "improvement" and what another calls "ugly" can be the same thing.

I wouldn't do it based on it being in great shape when you get through, they might think a room painted purple and pink was the most beautiful thing ever...

They can get out of the lease (in many or most places) by losing the deposit,,your on the hook,,,I would give yourself some sort of out,,,and you could still sell it even though its under lease

Sounds wierd to me, we don't do weird with our business.

The first issue I would have is regarding the laws on your state regarding a longer term lease. In my state of wisconsin there are different timelines for notices and other things with a lease over 2-3 years. Another issue is that a3 year lease or longer does violate the "due on sale clause" for mortgages. Whether that bothers you or not is your decision. If you do need to sell or even refinance a 5 year lease could negatively affect that process.

I think I would offer a lease just under 3 years (whatever the timeline is inwisconsin for rule changes). I would for sure stay under 3 years just to not violate the due on sale clause. I would then offer the tenants first rights of renewal for another 2 year lease so they get their 5 year commitment just structured slightly different. I would also enforce oversight into projects with some guidelines on what would allow you to say no. This can be fair toyou to protect your investment but also give them more flexibility than normal by far. I would also have a document stating that any remodel work done stays with the house and does not give them any ownership stake in the property and that they are doing it of their own free will. I would also beef up the early termination fee so that you are able to cover some of you loss if they do not fulfill their end of the agreement. I would also ask for the highest legal amount of security deposit possible as well to help cover the liability.

I would also attempt to leave the possibility of a rent increase open for the last two years. Something along the lines that monthly rent can be increase up to 10%. This could be based on the percentage increase of the property taxes over that time. So if property taxes rise 5% or less over that time rent remains the same and from 6% - 15% the rent will increase 1% - 10%. You could also add other metrics but that one would be the simplist I believe.

What could go wrong? Month two after everything is ripped out and half assed and half completed the artist and his muse need to move on. How do you plan to resolve this problem?

Offering multiple year leases if a favorite ploy of bad tenants. They know it entices rookie landlords and they know they can walk at any point without any repercussions.

I've had tenants worry about being sold out from under and I've had no problem stating in the lease that I would not sell for a year or two but I would NEVER obligate myself to more than one year lease unless there was some major upfront money.

I does sound weird! I would not do more than 24. I had folks asking me about 36 months lease before, so I told him our policy is not allowing to lock us in for this long BUT i verbally insured him that the home will be available after lease is up with a small increase of 5-10% in rent!

Ps some "Artists" personalities are known to leave the property in the middle of the night/ never to come back again and with out letting you know!!!

As a residential landlord, you can't make tenants responsible for necessary repairs. They will get all excited about re-tiling the fireplace and be willing to make upgrades that suit them. But you have to repair the faucet or hvac when they request it. I doubt there is any way around that, no matter what state you are in.

Have you vetted these people at all? Do you know if they have ever lived anywhere more than a year? Checked their credit, checked their references?

I have not check into their background, references etc...yet. It's not the right time to do the vetting in the process.

We are discussing general terms and once there is a meeting of minds, then the vetting happens.

Right now they want the house but not unless I can commit to a long term lease, and I am not keen on the idea of just handing the keys over and let them go to town with "renovating".

I fully can imagine the image in Close Encounters of The Third Kind where the guy dug a hole in the living room and made a pile of dirt and walk away. So yes there are lots of questions.

I am trying to wrap all the questions together and see if there is a way I can structure this to a win-win.

I can't address the long term lease issue, but I would *never* let a tenant remodel/repair anything! As Andy said, you have no idea what style or level of skill they have. We had tenants that gave us 5 days notice last month, and we hadn't seen the condo for quite some time. Despite what the lease said, they painted the condo (poorly, and a horrible color), installed a backsplash (again poorly, which had to be ripped out), stained the kitchen cabinets, spray painted the patio, destroyed carpets with filth, and caused $7K in overall repairs. And this was all *without* permission.

Any tenant that claims to be handy and can do repairs - RUN!

Outside of it sounding weird, they can totally destroy the home or have some crazy remodel which may not be rentable for another tenant which can cause you big bucks to undo what they did.

Not to mention a 5 year lease may not be legal, check your landlord tenant law. In my area, the max a tenant can sign is 2 year lease with the option to extend.

Sam, how is your rental market? If you think you can rent it out to somebody that doesn't need to do all that work then I would recommend doing that. If you are somewhat desperate in your search maybe you could let them do some repairs but only 1 project at a time and with your direct supervision and approval?

I'd never allow a tenant to do any work, including painting. I have seen too many houses where the foreclosure was probably due to the owners being taken away by the ugly police.

And 5 years? Without an increase even being possible? I agree with the others. I would give them maybe 3 years, with the ability to raise the rent in reference to some index such as the CPI every year.

Originally posted by @Josh Dotzler :
Sam, how is your rental market? If you think you can rent it out to somebody that doesn't need to do all that work then I would recommend doing that. If you are somewhat desperate in your search maybe you could let them do some repairs but only 1 project at a time and with your direct supervision and approval?

I am not desperate but the idea having a potential long term tenant that respects and treats the property "like their own" is attractive to me.

Obviously I will not just turn them loose and give them a chainsaw.

I will have to verify and make sure they are qualified DIYers. That can be done just via normal conversations. I am not worried about that I can share war stories and in the process of a talk I can determine if they really know how to do things without them knowing they are being vetted.

As for the long term leases, I will have to check my state restrictions beyond one year terms. I am open to a clause to allow them to have first option on renewal upon lease expiration. No rent increases, may be not, but a cap of NOT TO EXCEED may be possible.

As for repairs, I am responsible for all repairs and maintenance. Now if they have an issue and don't inform me, that I can't avoid and could happen with any tenant, depending on their skill level.

On the renovating. I will need to be involved, and it needs to be managed and discussed ahead of time and with my approval. Probably the way to structure it would be to document each "change" in writing, and stipulate in the lease any modification without my written approval would result in the violation of the lease. BUT they can suggest a change, I need to approve it, and work with them until there is a concensus. Then they execute it, and in return I am willing to pay them for it. So in a way it is like I would hire them to do the renovation in piece meals. Starting with smaller jobs and if that goes well, I will be more flexible. I get a bargain price and they get to live with their "creation". If I am not comfortable with the first few small jobs, I can stop everything and they can live till the end of the lease, or they can leave and lose the deposit.

To clarify, the house I am renting is not a house that's falling apart. Everything works and is mechanically sound.

However it is a 1960s house and hasn't been updated for some time.

On the lease you have lots of advice so I will comment just on the renovations. If they do a bad renovation you are stuck with it and then you have some unhappy tenants when it gets to their next proposal and you say no. So,if after all the negotiations on the lease they are still interested check out their art. If you dislike their art chances are you won't like their renovations. They could still be fine tenants but it is likely their taste is different then yours. It also could be a lot less neutral. If you like their art you could ask for a list of things they would want to do-agree to that upfront. Have they done them before and if so could you see the work? Your material costs don't change so you still have to plan on that.

An alternate scenario is you could agree to changing some things professionally while they are there, offering them design input. It is rare that you get tenants willing to live with reno so you could just use the opportunity to upgrade tenants in place. You lose the vacancy. they get their desired upgrades. If you would redo the pink tile eventually anyway.

To the best of my knowledge there is no lease term limit in florida...you can write the lease for 99 years if you wish. You will have lots of stereotypes with artists...and rightfully so, their usual lifestyle, credit & extra curricular activities usually deserves it. I've had my share of "artists" over the years and every single one of them has been a LOSER. hate it but it is what it is. The best one was a tenant who actually was a gifted artist...I have a couple of his works....and was great as long as his dear Grandma was available to pay the rent. I eventually had to evict him after Grandma headed to the pearly gates.

Landlording is just like dating...EVERYONE puts their best foot forward. It is best to assume the worst and be proven otherwise over time. Most artists operate way outside the norm unless they also have regular employment. No one wants to sign a 5-year lease unless they either HAVE To or because it sounds good but they know that they can never be held to it. A judgement against most artists as with most renters will be toilet paper.

In your mind it might sound good to have a tenant willing to improve your property but the likely result is that you will have to rip it all out anyway when they move or you evict them. I wouldn't be concerned with their credit...who cares about that now...but I would run backgrounds on them before even wasting much time chatting with them. If they make it past the background check...and run their names through mugshots.com for FL as well...they make an appointment to meet them somewhere publicly to chat...then visit their current "home." I would ask to do so right after the public meeting so they don't have time to prep.

Previous landlord references are a waste of time in terms of what they will tell you...if the current tenant is a problem, most will tell you how wonderful they are just to get them peacefully & quickly out of THEIR rental. I check with every previous landlord just so the renter knows I am checking. I look for good, long term personal references.

From experience - I can't stand cats...every pet owner will tell you that they have the best dog or cat...but cats are the worst. Once they pee in the house....although yours might have a concrete slab....you can never get the smell out...you can mask it for a while but the only way to get it out is to rip up the subfloors and replaces. You might never smell but every other cat that ever comes to the house will pee in the same place. I usually get a high, not refundable pet deposit on each pet...but it is case by case.

Also, it's a great idea to get bank statements where you can...especially on self employed people. Tax returns don't mean as much to me...I like to see the cash going in and out of the account. With self-employed on a single fam rental, I like to see a years worth of statements. With my shared housing model, I don't go as deep and a ton of my renters don't even have bank accounts.

Hope it works out for you but be super careful. It's all a balance of risk & reward but you are considering a renter that most of us would run from...doesn't mean it won't turn out great for you! Just be very cautious and cover your bases. Good tenants are usually long term...they stay for 2 to 3 years. In my shared housing model, renters sign a very tough lease but it's only for 6 months and month-to-month after that. Many want to resign for another 6 because they run the risk of me raising the rent.

If the artists are good renters then you will keep them long term and not be raising the rent much anyway. It's easier for you to keep someone long term even if the place becomes a pit as long as the rent keeps coming in and code enforcement isn't knocking on your door!

Just say no.

There is no agreement that can overcome a residential tenant claiming an economic interest in a property if they make improvements or do major repairs.

I'd tell the tenant that "the reason the can't do repairs or improvements is because by law, you are required to account for such expenses. That deducting and depreciating expenses must be accounted for and would be tax fraud if tenants paid these items."

Word for word, that is true.

Tell them also what Kyle mentioned "any lease over 3 years violates my mortgage agreement"

You may not make any agreement that provides an automatic renewal as that is considered a continuous lease, same issue as being longer than 3 years.

If it's a rural property, not zoned, and they will be conducting a business activity with a studio, you could do a commercial lease, but I'd want something from the lender giving consent.

I've dealt with artsie phartsie's before. While I love the arts, some of these people dance to a different tune and have no common sense. They are difficult to do business with, they are not dumb, usually very bright and they seem to want to transpose your tune into theirs with some illogical free sprit thinking. I avoid the ones that get too far out. Had one that made decisions by swinging a crystal on a chain! Only one was a slow pay, but dealing with them was a PITA.

I suggest you stick to your guns, not get baited into future issues or problems just because they want something different. :)

Medium logoscopiccroppedblue2Bill Gulley, General Real Estate Academy | https://generalrealestateacademy.com

As an owner/landlord, you are attracted to the idea of a stable, low maintenance tenant.

The tenant wants to be able to contain future costs and treat the house like it is his/her own.

There are certainly ways to structure a lease which incorporates the basic features sought. That could be as simple as an option to renew/extend with pre-determined rent increases, for example.

My concerns are several: why would you be willing to abandon your game plan and tenant criteria for an anomalous tenant prospect? Why aren't you concerned that the tenant might be attempting to acquire certain equitable rights beyond normal tenant rights? I had this discussion on Friday with an investor friend who had a squatter break in to one if his properties, while vacant, vandalize with spray paint in what the squatter claimed was artistic work-in-progress, and then successfully resisted u/d efforts to evict for many months.

I'm in the "tell the guy to move on" camp. If he wants predictable costs and to paint "his" house purple, he should be a buyer, not a tenant. I'd give him a few real estate agents's cards as a lovely parting gift and then donate money to your local homeless shelter as gratitude for dodging that tenants bullet.

Originally posted by @Sam Leon :
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However it is a 1960s house and hasn't been updated for some time.

If you need a legal reason to say NO - as a landlord, in any pre-1978 construction, improvements are required to be performed by those who are EPA RRP certified. I doubt your prospects meet that requirement.

Originally posted by Aly NA:
I can't address the long term lease issue, but I would *never* let a tenant remodel/repair anything! As Andy said, you have no idea what style or level of skill they have. We had tenants that gave us 5 days notice last month, and we hadn't seen the condo for quite some time. Despite what the lease said, they painted the condo (poorly, and a horrible color), installed a backsplash (again poorly, which had to be ripped out), stained the kitchen cabinets, spray painted the patio, destroyed carpets with filth, and caused $7K in overall repairs. And this was all *without* permission.
Any tenant that claims to be handy and can do repairs - RUN!

Letting tenants do repairs exposes you to possible mechanic's liens and law suits. They could hire a plumber or drywall guy and not pay him. The contractor goes after the property owner. This is why most landlords won't let tenants make the call on any repair.

No go...Sounds like they want to be owners!!! Maybe consider owner financing...

I agree with Mr.Babiak. NO WAY

Our lease prohibits any repairs by the tenant or any liens to be imposed by any party. Without regular quarterly inspections, our own fault, we had no idea what was going on in there. We tell every tenant upon lease signing they are not allowed to do any repairs or make any changes. This was the first tenant that ever did anything like this.