Inheriting tenants in a rental, best source of do’s & don’ts?

Question

Looking at a number of small multi unit deals that all come with some or all units rented. While I know there’s a plus to this, I also know it comes with hidden issues as well.

Want to inform myself on best practices and pitfalls to avoid surrounding property / tenant takeover.

Any help is appreciated! Thanks

Nathan Gesner · Answer

One of the biggest pitfalls is not verifying the terms of each tenancy. Your offer to purchase should include a requirement that they provide all documentation and agree to sign an estoppel certificate (also called estoppel form or agreement). The estoppel certificate is a form filled out by the tenant, confirmed by the Landlord, and accepted by you. It's supposed to ensure there are no surprises after closing. For example, the tenant could claim the Seller allowed them to paint the walls black or that their security deposit was twice what the Seller told you and paid you. How will you know? An estoppel certificate fixes this problem.

Some things it may include:

1. Tenant name, contact information, and address

2. Occupancy date

3. Is there a written lease? If so, review it to ensure it matches the estoppel certificate

4. Are there any modifications to the written lease?

5. Are there any verbal agreements or arrangements between the current Landlord and Tenant?

6. Current lease term (expiration date, month-to-month)

7. Current rent rate

8. Rent due date

9. Security deposit amount

You can find plenty of examples by searching for "tenant estoppel certificate doc" or exchange "doc" with "pdf" for more options.

Here is an example and explanation: https://eforms.com/rental/estoppel-certificate/

Some have a lot of legal jargon but this document does not need to be so detailed. This is an important tool for anyone buying a tenant-occupied property.

Wesley W. · Answer

@Jason Papp

Here is the one I use.  As @Nathan G. stated, this an extremely important document that is often overlooked by newer investors.

(1)  Legal tenant name(s), and names of all people (including minors) living in rental unit:

______________________________________________________________________________________

___________________________________________________________________________________________________________

(2)  Address and apartment number: ___________________________________________________________

(3)  I have signed a written rental agreement / lease for this apartment.  YES  or  NO  (circle one)

(3a)  If you answered YES above, do you possess a copy of that written agreement?  YES  or  NO  (circle one)

(4)  I have been living in this unit since  _____/______/_______(date).

(5)  My current lease ends on _____/_____/____(date) OR  My lease is month-to-month  YES  or  NO   (circle one)

(6)  My rent is $______________per month or week (circle one) and is due on  ____________________.

(7)  I participate in a housing assistance program (such as DSS / Section 8)  YES  or  NO   (circle one)

(7a)  If YES, please indicate which program(s) assist you, how much they pay, and your contact person there:

Program: ______________________  Amount they pay:  $ ___________ Contact name/ph #:  __________________

(8)   I have paid a security deposit.  YES or NO  (circle one)  and the deposit amount is $ ______________.

(9)   My most recent rent payment was made on  ____________, 20_____ (day/month/year) in the amount of $_______________

(10) I am responsible for paying these utilities:  ________________________________  (Write “none” if applicable)

(11) Any other deposits or pre-payments are as follows:  __________________________________  (Write “none” if applicable)

(12) The appliances I own are:  _________________________________________  (Write “none” if applicable)

(13) Smoking occurs inside my rental unit.  YES or NO (circle one)

(14) At least one animal lives in or visits my unit.  YES or NO (circle one)   How many?  ________________

(14a)  species/breed/weight:   __________/_______________/_______lbs.  __________/_______________/_______lbs.

(14b)  YES or NO (circle one)    I have paid a non-refundable pet fee in the amount of  $______________

(14c)  YES or NO (circle one)   I pay a higher monthly rent due to my pet(s) in the amount of  $_____________

(15)  Other written or verbal agreements I have with the landlord are: (Write “none” if applicable.)_________________________

_______________________________________________________________________________________________________

(16)  Any issues related to my tenancy or any repairs that are needed are: (Write “none” if applicable.) _____________________

_________________________________________________________________________________________________________

FOR YOUR PROTECTION, DO NOT LEAVE ANY BLANKS – WRITE “NONE” IF APPLICABLE

Signed by tenant ____________________________________________  Date: ____________

Signed by tenant _____________________________________________ Date: ____________

I have reviewed the answers given above and agree with the tenant’s statements regarding their payments, agreements and deposits.

Owner: _____________________________________________ Date: ___________

Jason Papp · Answer

@Wesley W. @Nathan G.

I’m going to discuss with my agent. I know getting leases is part of the due diligence requirements of the offer she is compiling. I will ensure something along these lines is included as well.

Sean Autry · Answer

@Jason Papp, hopefully you’ll have good enough rapport with the sellers that you can trust them to give honest feedback on the tenants.  Ask the current owner- find out the “problem children”, find out what’s left on their lease, and (a) see if the seller will agree to have them out before closing, or (b) you start the process of getting them out as soon as you takeover, and bake that cost into your purchase price.  Option (a) is preferable.  Even if they’re on a lease, the seller may be able to buy them out of it.

I’ve bought property with inherited bad tenants, but we know about them before closing so it isn’t an unwanted surprise, but rather an issue we’ve already planned to deal with on takeover.

Jason Papp · Answer

@Nathan G. Thanks for the insight. Exactly the type of information I was looking for.

Inheriting tenants in a rental, best source of do’s & don’ts?

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