Buying house and taking over the existing tenants

Member since 2018 · 62 posts · 37 votes

Hey fellow BP fans!

I'm in the process of buying a house but have agreed to keep the existing tenants. I did some due diligence on them to make sure I wanted to do this. This is my first time taking over tenants. What should the process be?

I'm thinking I will have them sign a new lease starting the day I take ownership, with the same existing end date, and stipulate that this invalidates the prior lease agreement. What I'm not sure about is if I need something specific from the existing owner.

Thank you in advance for your answers

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Jeff CopelandBusiness Member

Real Estate Broker · Tampa Bay/St Petersburg, FL · Member since 2015 · 1k+ posts · 2k+ votes

11mo

The lease normally survives the sale and remains in effect.

You can have the seller of the property sign an Assignment of Lease at closing, basically assigning all of the rights and benefits of the lease over to you as the new owner. This isn't absolutely necessary, but one could certainly argue it's a best practice.

As mentioned by others, you should absolutely have the tenant(s) sign an Estoppel. It's a fairly simple document that asks the tenant to sign verifying things like:

My lease term is from ___ to ____ at ____per month

My security deposit is _____

I paid advance rent (i.e. last month's rent paid in advance) in the amount of ____

My rent is current through _____

Tenant Estoppels are often overlooked, but they can become very important at two particular times:

Immediately after closing: Tenants have a tendency to say things like "I already paid my November rent early to the old landlord (sometimes they did, which leaves you scrambling to collect it from the seller, but sometimes they didn't, and having a signed Estoppel avoids this situation).

Several months after closing: There's nothing worse than coming up on a lease expiration or renewal and finding out the tenant paid their last month's rent in advance, but the seller didn't transfer it to you at closing (a surprisingly common occurrence) OR having a tenant say they paid their last month's rent in advance and you don't know if that's true or not, and the seller now lives off the grid in Belize or something!

Another issue that can pop up is you got a $1500 security depsost from the seller, but eight months later when the tenant moves out, they show you a receipt or canceled check that shows they actually paid a $2500 security deposit (you are likley coughing up the extra $1000 in this scenario if you didn't get an estoppel).

As you can see Tenant Estoppels are a powerful tool when it comes to ensuring:

1. The leases show the correct rents, deposits, and expiration dates (and if not, this can and should be addressed prior to closing, rather than finding out months later when you likely have to eat the loss).

2. The correct prorated rents and deposits get transferred to you at closing.

3. The tenant signs off on exactly what they agreed to and paid in terms of rents, deposits, and lease terms, so you both avoid any confusion after closing.

I have sample Lease Assignments and Tenant Estoppels I'm happy to share if you want to reach out.

Copeland Morgan LLC4.770 Reviews

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Nicholas L.Pro Member
Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
11mo
@Jorge Caceres
hire a PM and have them lead
1 Reply
- Jorge Caceres
  OP
  Member since 2018 · 62 posts · 37 votes
  11mo
  Quote from @Nicholas L.:
  
  @Jorge Caceres
  hire a PM and have them lead
  
  Thank you @Nicholas L. for your reply. I had a PM for my rentals but sadly he passed a couple of years ago and I have been managing them since then. My RE agent is going to prepare the new lease.
  0 Reply
Colleen F.Pro Member
Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
11mo
@Jorge Caceres you need a signed estoppel stating what is on deposit rent, state that the tenant owns no appliance if that is the case and any they own etc if that is true, the tenant signs before closing. I assume you already know the tenant is current on rent and you instru ct them immediately on closing to send rent to you. Deposits are transfered at closing. You are bound by the current lease until expiry but you can ask them to sign a new one.
0 Reply
- Jorge Caceres
  OP
  Member since 2018 · 62 posts · 37 votes
  11mo
  Quote from @Colleen F.:
  
  @Jorge Caceres you need a signed estoppel stating what is on deposit rent, state that the tenant owns no appliance if that is the case and any they own etc if that is true, the tenant signs before closing. I assume you already know the tenant is current on rent and you instru ct them immediately on closing to send rent to you. Deposits are transfered at closing. You are bound by the current lease until expiry but you can ask them to sign a new one.
  
  0 Reply
- Jorge Caceres
  OP
  Member since 2018 · 62 posts · 37 votes
  11mo
  Quote from @Colleen F.:
  
  @Jorge Caceres you need a signed estoppel stating what is on deposit rent, state that the tenant owns no appliance if that is the case and any they own etc if that is true, the tenant signs before closing. I assume you already know the tenant is current on rent and you instru ct them immediately on closing to send rent to you. Deposits are transfered at closing. You are bound by the current lease until expiry but you can ask them to sign a new one.
  
  Thank you @Colleen F. for the reply -- Yes, I checked the tenant and they are current and paying on time. I will ask them to sign a new lease at closing though.
  0 Reply
Adam BartomeoBusiness Member
Real Estate Broker · Cape Coral, FL · Member since 2015 · 2k+ posts · 1k+ votes
11mo
I would be surprised if the tenants would sign another lease if they already have one. There would have to be some sort of benefit to them. You will be unable to force them to do this.
[email protected]239-339-3969
Bartomeo Property Management4.7150 Reviews
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0 Reply
- Jorge Caceres
  OP
  Member since 2018 · 62 posts · 37 votes
  11mo
  Quote from @Adam Bartomeo:
  
  I would be surprised if the tenants would sign another lease if they already have one. There would have to be some sort of benefit to them. You will be unable to force them to do this.
  
  Thank you @Adam Bartomeo, yes, as @Colleen F. pointed out to me, the lease is bound to the property, so I don't have to have them sign a new one. I am already in conversation with them, and I believe (hope) it will be a smooth transition.
  1 Reply
Colleen F.Pro Member
Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
11mo
@Jorge Caceres yes you have the lawyer do an estoppel for the lease agreement confirming key points especially if they don't give you the lease or there is any concern about money on deposit etc. or lease is verbal or old.
0 Reply
Jeff CopelandBusiness Member
Real Estate Broker · Tampa Bay/St Petersburg, FL · Member since 2015 · 1k+ posts · 2k+ votes
11mo
The lease normally survives the sale and remains in effect.

You can have the seller of the property sign an Assignment of Lease at closing, basically assigning all of the rights and benefits of the lease over to you as the new owner. This isn't absolutely necessary, but one could certainly argue it's a best practice.

As mentioned by others, you should absolutely have the tenant(s) sign an Estoppel. It's a fairly simple document that asks the tenant to sign verifying things like:

My lease term is from ___ to ____ at ____per month

My security deposit is _____

I paid advance rent (i.e. last month's rent paid in advance) in the amount of ____

My rent is current through _____

Tenant Estoppels are often overlooked, but they can become very important at two particular times:

Immediately after closing: Tenants have a tendency to say things like "I already paid my November rent early to the old landlord (sometimes they did, which leaves you scrambling to collect it from the seller, but sometimes they didn't, and having a signed Estoppel avoids this situation).

Several months after closing: There's nothing worse than coming up on a lease expiration or renewal and finding out the tenant paid their last month's rent in advance, but the seller didn't transfer it to you at closing (a surprisingly common occurrence) OR having a tenant say they paid their last month's rent in advance and you don't know if that's true or not, and the seller now lives off the grid in Belize or something!

Another issue that can pop up is you got a $1500 security depsost from the seller, but eight months later when the tenant moves out, they show you a receipt or canceled check that shows they actually paid a $2500 security deposit (you are likley coughing up the extra $1000 in this scenario if you didn't get an estoppel).

As you can see Tenant Estoppels are a powerful tool when it comes to ensuring:

1. The leases show the correct rents, deposits, and expiration dates (and if not, this can and should be addressed prior to closing, rather than finding out months later when you likely have to eat the loss).

2. The correct prorated rents and deposits get transferred to you at closing.

3. The tenant signs off on exactly what they agreed to and paid in terms of rents, deposits, and lease terms, so you both avoid any confusion after closing.

I have sample Lease Assignments and Tenant Estoppels I'm happy to share if you want to reach out.
Copeland Morgan LLC4.770 Reviews
Website View Page
3 Reply
Colleen F.Pro Member
Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
11mo
@Jeff Copeland thanks for laying it out, the only other one I have seen come up now and then is a tenant claiming to own an appliance (and sometimes they do). So the poster might want confirmed that all appliances are property of the landlord and list any that are not.
2 Reply
- Jorge Caceres
  OP
  Member since 2018 · 62 posts · 37 votes
  11mo
  Quote from @Colleen F.:
  
  @Jeff Copeland thanks for laying it out, the only other one I have seen come up now and then is a tenant claiming to own an appliance (and sometimes they do). So the poster might want confirmed that all appliances are property of the landlord and list any that are not.
  
  Thank you @Colleen F. and @Jeff Copeland, I have asked my RE agent to draw that for me and present it to the tenant for signing once we have set a closing date for the purchase.
  0 Reply

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