Handling current Tenants while adu is built

[Manuel Grossi]

Hello everyone,

I’ve been stressing about this issue and was hoping for some advice. I’m a novice real estate investor and any suggestions would be much appreciated. 

I purchased a duplex a few months ago and assumed two tenants (top/bottom units). They are very nice and treat the property like their own. 

I signed a lease in February for 1 year with them. Soon after signing the lease an opportunity to build an adu came my way. I have the permits,drawings and trades lined up for a 700sf building to be built in the backyard. 

I know the tenants love the backyard and would be upset to lose it.

Any suggestions on how you would handle this situation? Would you offer a rent rebate for a couple of months? Or any other incentives to keep them happy?

The house is in an area that can be easily re-rented. 

Thank you for any advice

[Greg M.]

You can't just take the backyard away from them unless the current lease wording makes it clear the backyard is not included. Otherwise they'd have had a reasonable expectation that the backyard would be available to them and would not materially change. 

You may have permits, drawings, and trades lined up, but what you also have is a contract with the tenants and just because an opportunity came up doesn't mean you can ignore that contract.