Previous tenants are month to month with no lease

Lebanon County, PA · Member since 2015 · 49 posts · 6 votes

I have a 2 unit under contract, the current owner told me tonight that the current tenants are month to month, but never signed a lease or gave security deposits. They haven't been late on any payments, but they are employees of his so if they don't pay he deducts it from their paycheck. He's also charging them a little under market rent. He says they wouldn't pass a credit check. When I take over the property on day 1. What must I do? Have them sign my own lease and collect deposit? Or do I give them notice letting them know I won't be renewing their previous deal with the previous owner. Should I worry about a problem of them not leaving since their isn't a previous lease agreement? Help me understand the process that needs to happen.

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Roy N.Pro Member

Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes

@Kyle Wenger

First become intimately familiar with your local tenancy law to know what you can and cannot do. As an example, were the occupants are already in tenancy, you may be able to ask them to remit a security deposit, but you may not be able to compel them. Likewise, your new lease may, or may not, be permitted to restrict rights currently afforded the tenants under the default ("at will") lease provided in the tenancy law.

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Roy N.Pro Member
Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
9y
@Kyle Wenger
First become intimately familiar with your local tenancy law to know what you can and cannot do. As an example, were the occupants are already in tenancy, you may be able to ask them to remit a security deposit, but you may not be able to compel them. Likewise, your new lease may, or may not, be permitted to restrict rights currently afforded the tenants under the default ("at will") lease provided in the tenancy law.
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Tracy StreichPro Member
Real Estate Broker · Tulsa- OKC Oklahoma · Member since 2017 · 868 posts · 801 votes
9y
So on a deal like this I asked myself how good is the deal for the additional risk. If you have a lot of margin then maybe you go ahead and not worry about the security deposit. However this is not something you worry about after you close You need to have this figured out prior to closing. If he has the relationship with them he needs to approach them to sign a lease prior to closing. If he's not willing to do this or they're not willing to sign this may be a red flag of warning to you
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Kyle Wenger
OP
Lebanon County, PA · Member since 2015 · 49 posts · 6 votes
9y
Tracy Streich So you're recommending that I ask the seller to have in writing a month to month lease structure and have the tenants sign it before I close on the property? I suppose there is no way for me to talk to the tenants and have them sign a lease before I close and make it effective the day I close? What other options do I have? What problems do you see me running into as far as not renewing their previous situation since their really isn't anything in writing.
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Account Closed
Oakland, CA · Member since 2017 · 133 posts · 58 votes
9y
I would have the seller sign a month-to-month lease with them, then give a copy of the lease to you before close of escrow. The lease prove they are tenants, so you can take the lease to court to evict them in case they refuse to pay rent to you. Otherwise, there is a chance that the tenants become squatters. A bigger problem without a month-to-month lease.
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Colleen F.Pro Member
Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
9y
Ask your lawyer,.Not sure an estoppel letter would work with a verbal agreement. Otherwise he can give notice to the tenants but personally I would not want the current owner getting a lease in place now and you don't own it so you can't lease it pre-closing.
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Kyle Wenger
OP
Lebanon County, PA · Member since 2015 · 49 posts · 6 votes
9y
If they signed a month to month with previous owner, when I take over the property can I give them 60 days notice that I won't be renewing their month to month lease or can I have them sign my own lease?
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Account Closed
Oakland, CA · Member since 2017 · 133 posts · 58 votes
9y
Using the month-to-month lease under the seller and the tenant's names, once the escrow is closed, yes, you can give the tenants 30-days move-out notice. Without any lease, you may need to hire an attorney to get them out, hiring attorney will cost you much more money. I would definitely request the seller to give me a copy of the lease as a contingency to close the escrow unless it is a very good deal, then I don't mind spending extra money to get the tenants out after close of escrow.
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Roy N.Pro Member
Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
9y
Originally posted by @Kyle Wenger:
If they signed a month to month with previous owner, when I take over the property can I give them 60 days notice that I won't be renewing their month to month lease or can I have them sign my own lease?
Kyle:
Read the tenancy law for your state. In most places, unwritten leases default to a periodic monthly tenancy. Once the tenants are yours, you can serve them notice in accordance with the law even if they do not have a written lease.
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Irina Belkofer
Real Estate Broker · Cleveland, OH · Member since 2017 · 719 posts · 658 votes
9y
I'd ask the seller to move them out before closing, if it won't violate any law in your state.
If they won't sign the lease after closing, it might cause real problems to you.
They are the seller's employees and won't even pass the screening. You don't have ability to collect their rent.
Buying property with people in it is a big problem. I'd consult the lawyer before closing.
Also, would make the closing contingent on the tenants vacated the premises.
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Ian WalshBusiness Member
Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
9y
Ideally you will get them on a lease of yours but it's not the end of the world if you don't.
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Kyle Wenger
OP
Lebanon County, PA · Member since 2015 · 49 posts · 6 votes
9y
@Ian Walsh So are you saying I shouldn't be worried that the current tenants aren't on a written lease? What happens if on the day I take ownership of the property I have them sign my lease but they refuse to sign? How do I get them out?
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Nathan GesnerBusiness Member
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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
9y
@Kyle Wenger you are looking at this incorrectly.
Imagine both of your units were vacant and you were advertising for tenants to rent each unit at $800 a piece. Two guys walk up and offer to rent them for $700 but they tell you up front they can't pass your application process. They also tell you that they haven't always paid their rent on time but their boss just deducts it from their checks. Would you rent to them?
Have the seller give them notice to vacate and buy the place empty. If it's too late for that, do it yourself on the day you close. It makes little sense to buy a problem.
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Thomas S.
Member since 2016 · 13k+ posts · 12k+ votes
9y
You have two correct options and many bad ones. First they do have a lease, verbal holds up in court, and M2M is the best lease you could have.
Your options are to either have the seller provide vacant occupancy or you wait and give them notice of non renewal as soon as you become the owner. Make sure you get esstopal letters before purchase to nail down the details of their lease.
Why terminate. The answer to that should be obvious. The present owner has told you they pay late and that they would never qualify due to their credit history. Additionally they are his employees.
You do not want these to be your tenants and any advice you receive suggesting you could try them out will only lead to you non renewing at some point after you start losing money and sleep so you are best to start right.
Do not, I repeat, do not allow the present owner to sign a binding lease with them. If you do you will get scre*ed.
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Deanna McCormick
Minneapolis, MN · Member since 2013 · 2k+ posts · 1k+ votes
9y
Costs... if your under contract has your due diligence period ended.. I'd ask for more money at closing from seller to cover 2 to 3 months rent and court fees for eviction action.
If not that's what your looking at.. if they don't pay, it will take you proper notice prior to the first of the month to let them know your not renewing.. their lease and only after that if they fail to move then you have to file eviction action.. which will be court fees and again minimum of 3 weeks before court hearing.. and if they get an extension or ?? it could drag on.
The only guarantee you have in taking over a building is it is occupied,, yes their current leases written or verbal,, they carry over, but no one can guarantee the tenant will continue to pay.
You can ask current owner to deliver vacant,, but even he would have to go thru this process unless he can get tenants to vacate by a cash for key's to get out.
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