Investor · Monroe, WI · Member since 2015 · 691 posts · 610 votes
I am very concerned as the duplex I am closing on May 2nd has a tenant with a 1 year lease just signed a month ago but the seller won't provide the actual lease, and in the purchase agreement, the condition was to provide the lease terms, she claims she only has to provide the terms, not the entire lease, I have an attorney who says she needs to provide the entire lease, what are your thoughts?
Yikes, I would not sign until the leases are provided for your review and approval. Your contingency language is a bit loose, so now you know to ask for the lease agreements, payments history, utility and maintenance costs and records. You are not asking for the application (which might have social security and bank numbers). Assure them that they can strike out any of these numbers for confidentiality. You have all of the leverage, make use of it. Do not sign until they give them to you.
She is hiding something, and it is not good. Is she hiding a security deposit that should be transferred to you? is she hiding the name of the tenant because they have her same last name and they have inflated the rent? Is she hiding the name of the tenant because of a criminal history? Is she hiding that the rent is not as high as she told you? Is she hiding a payment history or signs of having a terrible tenant. You do not want to inherit these problems without knowing. If you know, then you can decide if it is worth your investment.
If you close, you are waiving the contingency of sale to see the lease agreements and accepting just what is being provided. Meaning, you can't say you didn't know to ask for them, you just decided it wasn't that important enough to delay a closing. Further, you knew the Seller was mysteriously uncooperative, yet you closed anyway.
I would have required this before paying for inspections, but I have also learned a few lessons. =)
That's strange she won't provide a copy of the lease to the buyer, especially since you're in contract and close so soon. I don't know how serious of an issue this could be unless there actually isn't a lease. Which they would be considered month to month I think. Can you bluff a back out since she's breaking the terms of the purchase agreement? I mean, you should have gotten a copy of that along with the financials as soon as you guys signed (if not before) I would think.
I just went through something similar with my last deal. I would suggest talking to your lawyer and see what your worst case scenario is if there is no lease or a terrible lease. Find out what your maximum exposure is in terms of time and dollars. Then you can make an informed decision if you want to go through with the deal or not.
Yikes, I would not sign until the leases are provided for your review and approval. Your contingency language is a bit loose, so now you know to ask for the lease agreements, payments history, utility and maintenance costs and records. You are not asking for the application (which might have social security and bank numbers). Assure them that they can strike out any of these numbers for confidentiality. You have all of the leverage, make use of it. Do not sign until they give them to you.
She is hiding something, and it is not good. Is she hiding a security deposit that should be transferred to you? is she hiding the name of the tenant because they have her same last name and they have inflated the rent? Is she hiding the name of the tenant because of a criminal history? Is she hiding that the rent is not as high as she told you? Is she hiding a payment history or signs of having a terrible tenant. You do not want to inherit these problems without knowing. If you know, then you can decide if it is worth your investment.
If you close, you are waiving the contingency of sale to see the lease agreements and accepting just what is being provided. Meaning, you can't say you didn't know to ask for them, you just decided it wasn't that important enough to delay a closing. Further, you knew the Seller was mysteriously uncooperative, yet you closed anyway.
I would have required this before paying for inspections, but I have also learned a few lessons. =)
If your Purchase Agreement states that the current tenant's Lease is a requirement to Close, of which they've signed off on, you have Rights. You have to right to Demand the agreed upon paperwork or enforce your right to Damages. When in doubt, there is no doubt. The Seller is hiding something. If the deal is worthy, you can choose to Close it. You could also ask for a modification (discount) to close without the Lease copy. Its a garden variety document to a closing. Its value is the path to running the property as you choose. Keep the tenants, raise the rent etc. If you do want to close, you could talk to the tenant if that didn't piss off the Seller. There's definitely something fishy going on. Also depends on what state the property is in. You should find out what the consequences are when ownership is transferred in regards to how that impacts an existing Lease (if there is one). Bottom line is, it sounds like both parties agreed copies of tenant Leases would be provided prior to closing. Seller needs to Perform or face the consequences.
@Samantha Klein I'd have your agent inform the seller that you won't be able to close without seeing the leases. I assume you're getting financing, and I know the lender I work with won't close a property without seeing the leases, a rent roll for 12 months, and a rental property verification form which outlines all the expenses and income related to the property. I'm surprised your seller has been able to withhold that for so long.
They don't have ground to stand on if it's in your purchase agreement, so you have all the power here.
Thank you for all of your answers. I am buying this property all cash. I have talked to my attorney and he has talked to my seller's attorney as this is an off market deal, we both have closing attorney's. The seller's attorney said she knows why I need a lease and that the seller is not wanting to provide it because the seller wrote it and doesn't want her lease given out but my attorney says we are going to get it. If you knew the seller, you'd understand, she's very anally retentive.
ah the "I'm different" seller. Yes, we're all different, which... makes us the same!! :) Really everyone has differences of reference, history and personality. What allows us to consummate a business transaction is Law. That's all that matters. It doesn't matter that the Seller wrote/authored/invented some kind of fresh perspective on a lease agreement. You are entitled to see it as an agreed upon matter of this Sale agreement. Unless there's some innovative language in it, the bottom line is its giving someone the right to occupy the property for an agreed upon rate and length. I'm also curious about what she's written in to the lease that so secret since they give the impression there's something unconventional about it.
Yes I agree, the owner's are very strict on who they let rent from them, I do know they allow no smoking and no pets, ect, but as I was explaining to my attorney, if there's a problem later with the tenant, how can I enforce the lease if I don't have a written copy? I mean, the tenant probably does but I'm not going to ask her if I can make a copy.
I would simply say no lease no close. You are in a stronger position than you think. You are paying all cash. Ya need to act from a position of strength versus fear.
In the future, not only include all active lease agreements (on the revenue side) and service contracts (i.e. HVAC system(s), water heater(s), heating fuel, etc) in the list of materials to be provided for diligence, but include a condition granting you, or your agent, the right to secure tenant estoppels after your review period of the materials and prior to Close. The tenant estoppels will either corroborate the information provided by the vendor or will expose any "on the side" arrangements.
Doesn't lease become binding on you when you close. How can you close without knowing what you signing up for. I have closed with tenants. I get the lease. You should also know how the security deposit is going to be transferred at closing, not after.
The only thing I can think of (unless you've seen the rent roll - which means nothing really), is that the rent rate shes quoted to you that her tenants are paying, is a whole lot more than what their lease says. Which makes all your numbers wrong.
Or, she could just be a half wit.
And yes, your lawyer is correct, the lease is a contract that continues through to the next owner, so you have to know what contracts have been signed on the property and what you are responsible for. For all you know, she could have given a 6 month rent holiday to the tenants. Obviously this is worst case scenario.
No lease, no close. End of discussion. If she is really anal about her "super secret lease" language, offer to sign an NDA (non disclosure agreement) which your lawyer can draft, that says you can't use anything unique in her lease, to design your own lease. The thing is, you could be accepting a totally non-enforceable lease.
@Samantha Klein So the situation is even stranger than it seemed at first blush. Stick to the no lease, no close arrangement since she wants cash, so withhold what she wants. She has a contract to fulfill, pure and simple.
I'm also curious now to see what the language of the lease is since it's apparently spiced with some bit of legal magic. Even though someone suggested an NDA, which might assuage her concerns, she entered into the P&S without requiring that arrangement so I'd use that as a last resort... and I am hoping you'll share the lease now, too.