"Lifetime" lease for a tenant

[Robert Lindsley]

Hi there,

I am in the process of buying a 7-unit multifamily property.  The property is being purchased via a combination of seller financing, some cash, and a small investment raise.  There are no real estate agents involved.

As part of the sale, the seller wants his brother (currently a tenant) to have a 'lifetime' lease for a fixed price ($350/mth) in his unit.  My attorney is suggesting that we structure his lease to cap the rent as $350 as long as he chooses to stay in the unit.

According to the seller, he committed to his mother that the brother would always be 'taken care of,' and this is his way of doing it.

I see a couple of risks:

- What is he stops paying rent?  If he were a normal tenant I would just kick him out, but there are special circumstances here.

- What is I sell the building to somebody else?  Wouldn't this create an encumbrance making it more difficult to sell the building?

What are your thoughts on something like this? Do you see any other risks that I could build into the P&S agreement?

Thanks!
Robert.  

[JD Martin]

I wouldn't do it. I would give the seller a price concession instead based on the value of what he's asking, if all the other numbers work - i.e. if the brother can reasonably be projected to live for another 20 years (240 months) and he wants the rent to be fixed at $350, I would have the seller carry those costs for 20 years at some reasonable rate of interest (say 5%), and then I would rent the unit at market rates, or just agree to some negotiated increased price, and let him give the brother the additional money (if the numbers make sense). I promise you, if you do this, that this is going to be a royal pain in the *** for you until you unload the building.