Legal Issues w/ Cash For Keys?

Question

I'm about to close on my first property which is a 4plex. The property is fully occupied right now but all the units need to be rehabbed and most of the tenants are on month-to-month. My plan is to get in to one of the units ASAP to get the rehab done and correct rents so I'll be serving a 30-day notice to vacate immediately after closing. I'd love to do cash for keys and get in that much sooner but I wanted to check and see if there are any local laws that would prevent me from doing so.

So experienced AZ folks, is there anything anyone is aware of that would prevent me from approaching a tenant and giving them the option of the 30-day notice or cash for keys?

Cara Lonsdale · Answer

I am glad this all worked out for you this time.  Cash for keys can be utilized as a tool as long as you document all communication you have with the Tenants.  They must agree to terminate the lease unless you can find a breach somewhere.

Brian Volland · Answer

I have the document we drew up, however, we did not have to use it. We "lucked out" and found one of our tenants was in irreparable material breach of the lease. They were out in less than 3 days.

If you'd like to see what we used, msg me your email and I'll send it along.

Some things to consider are not paying until moved out and all keys returned, stating that the property must not be damaged or otherwise change overall condition between signing and vacancy, property must be "broom clean", all possessions left behind are forfeit and will not be held, all tenants regardless of whether they are on the lease must vacate including pets and animals.

Tom McCarty · Answer

Hey Brian,

The lease is a contract at the end of the day and both parties to that contract can agree to terminate the contract.  If they are interested in terminating the rental contract for $$, there's no issue I can see.

A lawyer is your best source of info so call one and pay the $50 for the 5 minutes to be certain if you're going to lose sleep over it.

But beyond that, if you are depending on the 3 units rental income to make your payments while you rehab one at a time, then it makes more sense to remove one at a time.  Otherwise if you can afford to evict them all and go vacant for a couple months, wouldn't it make more sense to rehab the entire place at once?  Assuming you have the hard money to cover.

Thanks,

Tom

Brian Volland · Answer

Thanks for all the advice. Sadly, I close in 5 days so negotiating as a term of the contract out. I've sent the request for the guy to be served 30-day notice so we'll see how that goes but ultimately it's too late to try to make it the seller problem. I'll add that to the list of lessons learned.

Matthew Paul · Answer

Have the current owner get them out prior to closing . Make it his job

Mateusz Prawdzik · Answer

@Brian Volland Just like Brian said, in NJ it's the same. You can negotiate with the seller to do cash for keys because "TECHNICALLY" you are purchasing the property with all assets and things attached to it, including tenants. UNLESS, on the contract, likes clause #9 or so... it says all items that are excluded from the sale, if tenants are not included, then it's the current owners to get them out before you close on the property.

Brian Volland · Answer

Thank you for the feedback. I am eager but I've set both an upper limit and a much lower starting point. If I have to work my way up, at least I know where my firm upper limit is.

Brian Ploszay · Answer

You have the right to negotiate something like this.  Seems like you are eager, so don't overspend on the cash for keys.  Time will pass and you will get the units vacant.