I have a potential tenant who just sold his house and wanted to pay for a full year up front on one of rental properties.
My first instinct is that this sounds great.
What issues should I worry about, if any and what modifications should be added in my current lease?
Thanks in advance
@John Barry you have to remember, it sounds great, but you are not technically allowed to use the money. So, while you will never have a missed payment, that money must be placed in a trust and can only be dispersed as appropriate.
I would never take all the rent upfront for several reasons.
1. Is it drug money instead of "money from a house sale"? Many drug dealers with no verifiable income and credit will do this to entice landlords. You don't your rental turned into a meth house!
2. Why would they be willing to trust someone they don't know with a year's worth of rent money?
3. They turn out to be a bad tenant and now you can't get them out.
My "spidey" senses go on hyper when someone offers this. If it's too good to be true it probably is...
I would never; also in some states it's even illegal!
Illegal? Would never think that would be the case, but who knows.
I should have mentioned in initial statement that this individual worked for me in the past, so I have some knowledge about him.
The gentleman who is paying the money is NOT living in the apartment, it is for his mother and sister.
His story, which I believe, is that he sold his house, (which his sister and mother were living in), made a profit, acquired a new house and wanted to relocate his mother and sister.
I have met with him, I have had a lengthy conversation with him and I frankly believe him.
I guess where my question was trying to lead was: how do I construct the lease to include him as the payee. And the other tenants as actual tenants who will be living there.
This can't be the first time a situation like this had happened? (Thinking optimistically)
@John Barry I know it sounds like a great idea, but there are so many reasons why this is a bad idea;
Tenant could die
Tenant could lose their job
You may not like them anymore and need to be evicted
You must put all money in an escrow account, and take out their rent monthly as earned. Can not touch or spend this landfall!!!!
@John Barry - I worked for a landlord in Philadelphia who accepted a years rent upfront because an international student couldn't qualify due to not having any credit. This was a good solution vs her being denied.
I don't see why it wouldn't be legal. I'd add a clause that any assessments for damage mid-rental could be applied to money in the pre-paid rent account. That way if drugs/pets/guests happen, you haven't committed to them for a year. They can still break the lease and you have higher liquidated damages.
Make sure you screen the mom and sister and have all 3 listed as jointly and severally liable for the house and any damages. Check their landlord / prev address references. Use the property records online in your county to verify his ownership for x years of their previous residence, if they don't list any other landlord.
Natalie Vane somewhat more comforting hearing this response, granted I appreciate and respect all responses, my goal is to cover myself and draft the lease in a manner that would do just that....
@Kim Meredith Hampton with all due respect that could happen with any tenant. The death comment may be something worth adding to the lease, for example: if tenant is deceased prior to year end lease x dollars will be returned to payee?
@Jonathan Safa Iam familiar with the landlord responsibilities to escrow monies (I have additional properties and real estate license) having the tenant never miss a payment sounds good to me?
Thanks for reply!!
@John Barry @Kim Meredith Hampton - If you rented at an apartment at a big complex owned by Vornado, Starwood, Avalon, etc., and you died or lost your job, do you believe they would relieve you or your estate of your lease obligations? No. Not unless they were forced to somehow - and even then they'd probably attempt to charge some significant 1-2 month lease cancellation fee (whatever you agreed to in the contract).
So, why would a smaller landlord be obligated to not collect that rent if it's in a prepaid account? Obviously, it's reasonable for you to 'mitigate damages' by starting to look for a new tenant after the on-lease tenant has given notice and vacated, and you cannot charge rent after the unit has been re-rented. But you wouldn't likely have to give any prepaid rent back until the unit was emptied of all tenant possessions and the unit was re-rented.
If you have to put money in a escrow account, does the bank have escrow accounts? Or where exactly do u put it?
@John Barry and @Natalie Vane here is the article from legal council that I use in Florida, hope you find it helpful. As always check your own States landlord tenant laws :
Collecting rent has been the biggest and most basic challenge of landlords since the first cave was rented out in 1300 BC. Typically, tenants are required to pay rent on a specific day of the month, the 1st being the most common day of payment. Situations arise in which tenants are desirous of paying rent in advance, and most landlords do not perceive this as a problem, but rather see it as a plus. Many reasons abound for a tenant's prepayment of rent. The tenant may be going on an extended vacation or job assignment, may have come into a substantial sum of money, or simply doesn't want to be bothered with making monthly payments and is willing to pay the entire term of the lease, possibly in exchange for a more favorable rent amount. In a perfect world, accepting prepaid or advance rent would be an advantage, but there are many dangers and pitfalls which should be considered before the decision is made to accept prepaid rent. Additionally, there are legal considerations which govern how the prepaid rent is held and disbursed.
The Law and Prepaid Rent
Florida Statutes require that advance rent be kept in the same account in which the security deposit is held. If interest is to be earned, Florida Law must be followed regarding the payment of this interest and notifications to the tenant. The money can be removed from this account for use by the landlord only as it becomes due. This would prohibit a landlord from accepting prepaid rent from the tenant and immediately utilizing it for the landlord's general purposes if it has not in fact become due. In a typical lease, the term is for a year, and the payments are made monthly. This means that the landlord is only entitled to the rent when the due date arrives.
The Lease and prepaid rent However, there is a way that a landlord can legally take all or part of prepaid rent and utilize it at any time and for any purpose, but the lease must be drawn up differently. Instead of having a lease for a year, payable with monthly rental payments, the lease is for a set term, and the tenant is required to pay rent for the entire term. be it 3 months, 6 months or even the entire year. In this case, the lease is not a typical monthly lease, but simply a lease for a fixed term, and the lease states the amount of rent due for that term. Most leases are not structured this way, but this is a possibility and an available option to the landlord and tenant.
Prepaid rent and a tenant's unwarranted breach
If the landlord is holding prepaid rent, and the tenant breaches the lease by vacating prior to the expiration date of the lease, the landlord will be able to tap into that prepaid rent that is or should be held in the security deposit account only when it becomes due. Acceleration of rent is not looked upon favorably by the courts in Florida, so the landlord would need to wait each month to be able to actually utilize the prepaid rent. The law is not entirely clear regarding any duty by the landlord to try to rerent the unit to mitigate their damages, because presumably, there are no damages if the landlord is holding the rent. In the situation in which the tenant breaches the lease with no legal basis whatsoever, having prepaid rent will definitely be advantageous to the landlord.
Suppose the tenant has a warranted breach?
Many tenants who breach a lease by vacating prior to the expiration date have or will fabricate a legal reason why they are breaking the lease. Reasons may include a failure by the landlord to provide peaceful quiet enjoyment of the premises to the tenant, defects in the property, failure on the part of the landlord to make a legally required repair, or a host of other reasons which seem to come out of left field and astound the landlord when the breach occurs and the tenant is demanding a refund of the prepaid rent. That perfectly nice tenant, when faced with having to break a lease for a job transfer or divorce, will come up with novel or bizarre reasons why breaking the lease was completely warranted and legal under Florida law. It is bad enough that tenant can completely fabricate reasons why he will break a lease when there is no prepaid rent in the picture, and this only gets worse and more common if in fact the tenant has more at stake. Possibly the tenant's breach is completely warranted. Let's say the tenant just moved into a condominium. Two months after move-in, contractors begin replacing or repairing the concrete balconies. This tenant, who coincidentally has a night job and sleeps during the day, now is faced with listening to jackhammers and construction crews all day long. Can this person break the lease? While the construction noise may not be the fault of the condo owner, it is clear that the tenant's peaceful quiet enjoyment of the premises is interfered with significantly. If there were no prepaid rent, the tenant most likely would simply give notice and walk out of the lease, and the landlord would have a difficult time enforcing the remaining balance of the lease, as this would probably be considered a good reason to break a lease by most judges. If there is prepaid rent, many landlords will insist on keeping the rent, and many tenants will insist on getting it back. The result? Litigation. In the event of litigation, the landlord will be faced with trying to convince a judge that the tenant's breach was improper, illegal and unwarranted. The tenant will have an entirely different story, and if there are attorneys involved in the case, it will often become a bad situation.
Is the landlord "used"� to accepting prepaid rent?
Most landlords are not accustomed to accepting prepaid rent. They are more accustomed to chasing after current or past rent owed! This increases the risk that the prepaid rent is mis-posted in the computer system that the landlord uses for managing the property. Recently a client accidentally failed to post the rent prepaid by a tenant. The computer system incorrectly showed that the rent was delinquent, the tenant was evicted, and all his possessions were removed to the street. The tenant returned a month later, only to find that all his possession were gone and that he had been evicted. The result? Most likely a lawsuit will be filed. If a landlord is not accustomed to accepting prepaid rent, the danger increases dramatically.
Are you convinced yet? Often things that appear good turn out to be fraught with dangers. We urge you to think long and hard before you deviate from the standard and time tested way of charging and accepting rent monthly.
Sounds good, just check the credit of the applicants.
Best of luck!
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