Best Way to Terminate Leases upon Settlement

[Mark Simon]

HI Bigger Pockets Forum!

We’re super excited that we’re under contract for our first rental property! Woot! It’s a triplex in the Philadelphia area that needs a lot of work. Two of the units are currently occupied but paying well below market rents. We would like to terminate those leases right away and rehab the building. After much diligence, we're convinced that the cost/benefit of doing the rehab is compelling.

The existing leases have a very specific clause that says “If the landlord sells this property, the purchaser can end this lease”. However, we worry about the tenants being upset as they’ve been there for 2-4 years. Our attorney says that a lease with this sort of clause is rare and the tenants probably aren’t actually aware of that clause – even though they signed the lease. Also, if we enter any situation where we let them stay for a period of time, there are numerous issues that need attention (active leaks, broken fixtures, etc). Plus, the tenants do not take care of the property the way they should. One tenant’s unit is very messy; while the other did a bunch of unauthorized and shoddy alterations to the unit.

We’re thinking the best way to handle this is to contact them (in writing and in person) after settlement and announce our intentions. We’d like to give them enough fair notice to find a new place and make arrangements, but we also want to incentivize them to leave sooner and peacefully. Is it fair to simply say “you have 30 days to leave”? 60 days?

We look forward to hearing your thoughts!

-Mark

[Dan H.]

Originally posted by @Thomas S.:

Hopefully you are planning to do everything under the supervision of your attorney as it appears you have not put any time into studying your state landlord tenant regulations. If you plan on being a landlord after renovating you need to know and understand all your state regulations. It is your legal responsibility to know the regulations if you intend to have tenants. Until then do nothing without your attorneys supervision. Better yet have him send the letter to terminate the tenants.

If you purchased with the intent of doing significant renovation why do you care what the tenants think. Your getting rid of them asap in compliance with your state regulations. Give them notice and be done with it.  Fair is what ever the regulations require, nothing more. 

Legal and fair are not always the same thing.  The tenants had no role in the selling of the property.  It has been their home for 2 to 4 years.  I suspect that, from their perspective, any outcome that results in them being forced to move out is not fair.

In California, I am obligated to give 2 months notice for tenants that have lived there over a year even if they are on a month to month lease.  You need to find out what the law permits and then see if there is an advantage to accelerate via cash for keys.  It is a good idea to know the tenant/landlord laws.  There is a good chance you will need to know the laws at some point soon.

I would be cordial, matter of fact, professional and let them know the options, if they have any.  I.e. you can move out in two months or you can move out in one month and I will give you $x to help you cover your moving expenses.

It is a big impact to be forced to move from your home.  A little empathy about the impact will help ensure that you interaction is gentle but you do need them to vacate (i.e. understand it is an impact to the tenants but it is also a necessity to your investment).

Good luck