Seller waited until closing to inform about tenant notice

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Seller waited until closing to inform about tenant notice

Sean Krohn
Raleigh, NC · Member since 2017 · 3 posts · 0 votes

Last night I got a confirmed closing date for this Friday on my first duplex, and then this morning the seller agent has informed me that one tenant put in verbal notice on the 15th May (last week) to vacate on 15 June... I guess they didn't want to disclose this until we had a closing appointment set. It probably shouldn't be the biggest surprise as just before they listed the property this tenant went on a month-to-month lease, so they must have known it was coming. I do have a copy of the current month-to-month lease and it states that they need to give 60 days written notice to management before vacating, so correct me if I'm wrong but they have to honor the existing m-2-m lease, and the verbal notice will be invalid? To complicate things more, the tenant is section 8, they were only paying $100 of a $700 rent but I'll have to figure this out with the housing authority too. I obviously wasn't expecting to have to deal with a lease non-compliance and probably search for new tenant within a month of purchase, but I have to get the experience sooner or later right :-)  Any suggestions or similar experiences dealing with this type of situation would be helpful.

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Joe Scaparra
Investor · Austin, TX · Member since 2013 · 680 posts · 1k+ votes
8y

A couple of things you should do.  The leases transfer to you at closing, so make sure you have them and they have to be honored by all parties!  Most notices to vacate must be in writing as stated in the lease.  Check it out and see what it says.  Also see if the lease requires 60 days notice, if so the tenant must abide by the lease.  The fact it is a Section 8 tenant helps you,  as my Section 8 tenants are required to give 60 days notice and are enforced by Section 8.  If your tenant wants to remain in good standing with Section 8 policies they have to comply with the lease.   Also, if the apartment is not left in good condition, let the Section 8 management know as they could be a help in getting the tenant to pay for damages.  

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  • Brandon SturgillBusiness Member
    Real Estate Broker · Columbus, OH · Member since 2013 · 3k+ posts · 1k+ votes
    8y

    @Sean Krohn The property was still in the sellers possession when the arrangements were made, so it's a foregone conclusion. It's going to cost you more headaches than it's worth to pursue forcing this tenant to honor a month-to-month lease. It sounds like this was probably a bad fit anyway. You'll have turnover costs for sure, but you get to screen and place your next tenant.

    If this was a big deal for you, you could back out of the deal, but I'd wager to bet you would get sued for specific performance.

    (not to be construed as legal advice)

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  • Chuy Gonzalez
    Investor · Long Beach, CA · Member since 2012 · 313 posts · 190 votes
    8y

    Im thinking the 60 day notice was with the current owner, not you, but who knows? If it were me, I would want to go into that apartment TODAY to assess the condition, and determine what i need to get it rented ASAP.

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  • Joe Scaparra
    Investor · Austin, TX · Member since 2013 · 680 posts · 1k+ votes
    8y

    A couple of things you should do.  The leases transfer to you at closing, so make sure you have them and they have to be honored by all parties!  Most notices to vacate must be in writing as stated in the lease.  Check it out and see what it says.  Also see if the lease requires 60 days notice, if so the tenant must abide by the lease.  The fact it is a Section 8 tenant helps you,  as my Section 8 tenants are required to give 60 days notice and are enforced by Section 8.  If your tenant wants to remain in good standing with Section 8 policies they have to comply with the lease.   Also, if the apartment is not left in good condition, let the Section 8 management know as they could be a help in getting the tenant to pay for damages.  

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  • Mindy JensenPro Member
    BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
    8y

    @Sean Krohn , this stinks, but now you have a jump start on getting it turned and ready to rent out. Chasing after this guy for the remainder of the rent is a futile endeavor and perhaps he did you a favor by leaving.

    Make sure the rent is transferred to you at closing. Sounds like one side was going to be vacant and now the other is too? Bust your backside to get one side rented quickly to bring in some cash. Ask to view the property before closing to get a feel for what needs done and which side would be easier to get market ready. Then purchase supplies and have them ready to attack this house after closing.

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  • Sean Krohn
    OP
    Raleigh, NC · Member since 2017 · 3 posts · 0 votes
    8y
    Originally posted by @Joe Scaparra:

    A couple of things you should do.  The leases transfer to you at closing, so make sure you have them and they have to be honored by all parties!  Most notices to vacate must be in writing as stated in the lease.  Check it out and see what it says.  Also see if the lease requires 60 days notice, if so the tenant must abide by the lease.  The fact it is a Section 8 tenant helps you,  as my Section 8 tenants are required to give 60 days notice and are enforced by Section 8.  If your tenant wants to remain in good standing with Section 8 policies they have to comply with the lease.   Also, if the apartment is not left in good condition, let the Section 8 management know as they could be a help in getting the tenant to pay for damages.  

     The lease they provided me does say 60 days notice, I found an email forwarded to me with the local housing authority person who approved this tenants last assistance amount, so I emailed them to confirm whether the 60 days is a section 8 requirement, and if they are even aware of this tenants plan to vacate. I will be transferred the security deposit they paid which is about a months rent, so there is that.

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  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    8y
    Originally posted by @Sean Krohn:
    Originally posted by @Joe Scaparra:

    A couple of things you should do.  The leases transfer to you at closing, so make sure you have them and they have to be honored by all parties!  Most notices to vacate must be in writing as stated in the lease.  Check it out and see what it says.  Also see if the lease requires 60 days notice, if so the tenant must abide by the lease.  The fact it is a Section 8 tenant helps you,  as my Section 8 tenants are required to give 60 days notice and are enforced by Section 8.  If your tenant wants to remain in good standing with Section 8 policies they have to comply with the lease.   Also, if the apartment is not left in good condition, let the Section 8 management know as they could be a help in getting the tenant to pay for damages.  

     The lease they provided me does say 60 days notice, I found an email forwarded to me with the local housing authority person who approved this tenants last assistance amount, so I emailed them to confirm whether the 60 days is a section 8 requirement, and if they are even aware of this tenants plan to vacate. I will be transferred the security deposit they paid which is about a months rent, so there is that.

     Even if the lease states 60 days, by mutual consent of both parties that can be waived...and in this case it sounds like the current owner and the tenant have agreed to 30 days notice being acceptable.  So the 60 day portion will not be enforceable when you take ownership.

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  • Sean Krohn
    OP
    Raleigh, NC · Member since 2017 · 3 posts · 0 votes
    8y
    Originally posted by @Mindy Jensen:

    @Sean Krohn , this stinks, but now you have a jump start on getting it turned and ready to rent out. Chasing after this guy for the remainder of the rent is a futile endeavor and perhaps he did you a favor by leaving.

    Make sure the rent is transferred to you at closing. Sounds like one side was going to be vacant and now the other is too? Bust your backside to get one side rented quickly to bring in some cash. Ask to view the property before closing to get a feel for what needs done and which side would be easier to get market ready. Then purchase supplies and have them ready to attack this house after closing.

    Actually its not a disaster, the other tenant is there and on a lease until end of the year. I have a final walk through scheduled for Thursday, so will take notes and plan, thanks for the tip. I will get the prorated rent and their security deposit at closing so this could go towards getting the place rent ready. Just finished the BP property management book, will revisit the chapters on finding tenants, I skimmed those as I didn't think I would need that info immediately... :-) 

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  • Joe Scaparra
    Investor · Austin, TX · Member since 2013 · 680 posts · 1k+ votes
    8y
    @Russell Brazil

     Even if the lease states 60 days, by mutual consent of both parties that can be waived...and in this case it sounds like the current owner and the tenant have agreed to 30 days notice being acceptable.  So the 60 day portion will not be enforceable when you take ownership.

    When a lease states that termination must be in writing there is usually a clause that states that agreements or notices cannot be verbal.  Your assuming mutual agreement, when in actually the current owner is only stating the intention of his tenant.  Also, Section 8 can weigh in and put pressure on the tenant to give proper notice as stated in the lease.  My experience has been the Section 8 management will back the owner when they can as they want owners to use Section 8.  Unless there is a written trail of agreements the lease has to be honored by both parties.....period.

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  • Dave Toelkes
    Investor · Pawleys Island, SC · Member since 2008 · 1k+ posts · 837 votes
    8y
    Originally posted by @Sean Krohn:

    To complicate things more, the tenant is section 8, they were only paying $100 of a $700 rent but I'll have to figure this out with the housing authority too.  Any suggestions or similar experiences dealing with this type of situation would be helpful.

    Section 8 is an income-based housing subsidy program. The local HUD housing authority pays a portion of the rent and the tenant pays the balance. The more household income the tenant has, the greater the portion of rent paid by the tenant. If your tenant is paying $100 of a $700 rent, the housing authority is paying the remaining $600 (usually on the first business day of every month). If you are closing in the middle of the month, be sure to pro-rate the full amount of scheduled rent and then make sure you receive 100% of the security deposit.

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  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    8y

    The Seller and tenant negotiated something new, so you're out of luck.

    However, you bought the unit with the expectation the tenant would transfer for at least 60 days. The Seller changed those terms, which means the Seller technically owes you 60 days of rent, minus however many days the tenant is in the home after purchase.

    Can you collect it? Doubtful but it's worth putting this in writing and asking the Seller to make it right. In my mind, this is similar to a Seller swapping out appliance before closing.

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  • Matt K.
    Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
    8y

    I bet you could get 700 bucks out of the agents to close this deal, that = the extra month of rent you "lost"

    1Reply
  • Ben Wilkins
    Rental Property Investor · York, PA · Member since 2017 · 377 posts · 315 votes
    8y

    @Sean Krohn - this situation can swing both ways. If you were looking for a turnkey rental that was fully-tenanted, this is a slight setback. The tenant who is staying should pay your mortgage, which means you won't be losing money on this deal from day one.

    On the other hand, I know of quite a few investors who insist on having a property vacated when they purchase so that they can screen their own tenants. Inherited tenants can be a huge detriment to your investment if the tenants weren't screened properly.

    My advice would be to take the opportunity to do get some TLC done on the vacant unit, then rent it out. Make sure to screen tenants, and don't fall into the trap of filling the vacancy as quickly as possible. It isn't worth it, unless if you enjoy chasing rent and repairing units.

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  • Dustin Beam
    Kansas City, MO · Member since 2015 · 609 posts · 321 votes
    8y

    Vacancies are inevitable and now you get to pick your tenant. 

    Also I subscribe to the theory to "never force someone to stay a tenant if they don't want to". They have too much ability to trash your place or otherwise cause headaches. I do have a buyout clause in my lease though so I have that to point to if someone wants to move. 

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  • Account Closed
    Earth · Member since 2017 · 297 posts · 187 votes
    8y
    I love vacant units instead of leased units! That’s great that if the tenants move-out before close of escrow, so I can screen my own tenants and raise the rent to market price immediately instead of wait a few months to raise the old tenant’s rent or kick out the old tenant and rent it to a new tenant. Rental market is hot. It is not hard to screen and find new tenants with market rent rate.
    0Reply
  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    8y
    As to the “..I can use the tenant’s deposit to get the unit rent ready”.....be careful with that, the tenant may be entitled to that and your laws likely require deposits to be in a separate acct.
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  • Account Closed
    Earth · Member since 2017 · 297 posts · 187 votes
    8y
    My past experience, inherited tenants tend to be less co-operate and take longer time to raise the rent to close to the market rate. I usually keep the same rent for a few months after buying a property, then raise the rent gradually for inherited tenants. The new tenants whom are screened by me and whose move-in keys are handed-out by me, usually are more co-operate, plus their rent is top market rate immediately. But like other said, don’t be rush filing the vacancy, screen and pick the right one.
    0Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes
    8y
    Originally posted by @Sean Krohn:

    Last night I got a confirmed closing date for this Friday on my first duplex, and then this morning the seller agent has informed me that one tenant put in verbal notice on the 15th May (last week) to vacate on 15 June... I guess they didn't want to disclose this until we had a closing appointment set. It probably shouldn't be the biggest surprise as just before they listed the property this tenant went on a month-to-month lease, so they must have known it was coming. I do have a copy of the current month-to-month lease and it states that they need to give 60 days written notice to management before vacating, so correct me if I'm wrong but they have to honor the existing m-2-m lease, and the verbal notice will be invalid? To complicate things more, the tenant is section 8, they were only paying $100 of a $700 rent but I'll have to figure this out with the housing authority too. I obviously wasn't expecting to have to deal with a lease non-compliance and probably search for new tenant within a month of purchase, but I have to get the experience sooner or later right :-)  Any suggestions or similar experiences dealing with this type of situation would be helpful.

     Dealing with lease non-compliance is going to be an everyday aspect of the real estate investor's life. Might as well peel the bandaid off now and get your practice in early.

    Tenant wants to move out there really isn't much leverage you have over them to force them to stay another month or so. What you want to focus on is them getting out asap and leaving your unit in the best possible shape. Once they are out get in there to do your rent ready reno and start marketing this property to new tenants.

    You've got yourself a duplex with $700 rents. You are going to be doing this sort of thing pretty often, just get your systems in order to keep things moving forward quick and smooth.

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