I’m possibly buying a house where the one owner might stay on as a tenant one of the units. I want to offer first right of refusal on a lease, but I also want to make sure that they would not be able to establish residency.
He mentioned something like needing 30 (maybe 45) days after close of escrow to “find a new place”, but it comes across as a way to establish tenants rights in my view.
I thought I might suggest offering a lease, with the first month free, that way if he breaks it, I can file formal eviction that isn’t a “no fault” level eviction.
What are your suggestions/input?
Offer him a few grand to stay at a hotel while looking for a new place. You want to limit risk in this situation and cash will go a long way.
I agree, don’t let him stay, you want it vacant when you close. You can push closing for 45 days or offer him cash to rent an Airbnb in the area for 45 days while he looks. I think that 30 days is the magic number (but check with someone more knowledgeable) so I believe you’d want to keep the a lease at 29 days. I’m terrified of tenants rights in LA! I would not mess around on this.
California laws definitely favor tenants, at the expense of landlords. The most practical solution I've heard of for landlords is to offer them cash incentives to get out, rather than risk tying up one's property and creating potential liability with a contract (i.e., lease) which immediately puts them in the California driver's seat.
If he's already living in the house then he's already "established residency", and a tenancy is formed if he retains possession after closing with your consent. If you later decide you want him out, you're going to have to go through a formal eviction (unlawful detainer) process.
If you do allow him to stay, I certainly wouldn't offer him "the first month free". You're doing him a favor. Why shouldn't he pay for living there? If the idea was to let him live there for free thinking that you would be able to avoid the eviction process if he later refused to leave, that's not going to work. So you might as well charge him.
It's not that uncommon that a seller will want to rent back from the new buyer until they can find a new place, but you'll want to make sure everything is spelled out in some sort of occupancy agreement.
For example, a Seller in Possession Addendum (if possession will be less than 30 days) or a Residential Lease After Sale (if possession is intended for more than 30 days). Your Realtor should be able to help you with the appropriate form.
Here's some more reading that might be helpful:
Thanks for all the input. While having a tenant that likes the place is appealing, I am giving a long close and requiring the place empty and then offering my lease to the person (at market rate and standard application).
So this deal is slowly trudging along, and the current owner (bottom unit resident) is looking for a Leaseback Agreement of 60 days, where he pays the PITI of the place after escrow, minus the current tenant's (top unit resident) payment.
Something seems fishy. That would make the payment much higher than the market rent for the unit he would be occupying, and there is already a longer escrow time built in.
I'd like to do everything as cleanly as possible, but this area is one of the main considerations of the seller, so I still wonder what would be the best advice going forward? Would it make sense to write up a potential lease agreement that if they do stay longer than 60 days, the seller has to keep paying at that rate?
Overall, I would have the ability to evict via owner occupancy if worse came to worse?
@Kyle J. I somehow missed your post. Thanks so much for that info! I'm reading all of it now.
@Colleen F. My simple math may be off, but the PITI from my estimate is closer to $4000 total, minus $1600 is $2400. Market rent is probably $1300 to $1500.
Regardless of if the math is correct, its the residency details that I dislike.
I believe the intention of the person is to straight up not pay anything and, thus forcing us to go through the eviction/relocation process while they live in the house that they have tenancy on.
So here are my questions, really.
- How do I make sure residency is abolished when I take possession?
- What is a good strategy to use to close on the house with that unit vacant?
The LA market is INSANE and a total sellers market. I need a strategic position that doesn't end up with me owning a house that I'm paying the full mortgage on and not living in. lol
if he is in the unit at closing, he has residency as far as my understanding goes. your best option is to close with a vacant unit.
next best is to stipulate that a significant portion of funds stay in escrow until he vacates, with the stipulation that if he is not out by a certain date, these funds can be used to cover eviction costs. you should also bill him a high rate for tenancy and high fees for overstaying contract
I See I missed this was not going to be a cash flowing property. Deliver vacant is really your only good choice. If you dont go for deliver vacant have a number that the rent is. Not sure if length of occupancy <30 days gets you any advantage in california in getting people out. Or the hotel option sounds ok, you just want him out AT Closing.
@Lucas Allmon , is this property in Santa Monica or Los Angeles? Because it sounds like people might be setting you up to come under the onerous rent control laws, which would complicate your project.
@Bryan Zuetel It was in Highland Park in Los Angeles, and I 100% agree that is what was happening. We had the same offer as the other competitor, but our offer was to release the escrow funds halfway through (after inspection) the 45 day escrow to help cover moving/storage for the seller.
They denied it for the offer contingent. with their wishes. You could tell the seller didn't want to leave.
It was a great house, but I would not want to end up paying the full mortgage on a place with a 10 year tenant and a previous owner with tenants rights.
Hi Lucas. You should really consult with your agent and potentially a real estate attorney. In my opinion, you would want this property vacant at the close of escrow, but if you are already in escrow, that is unlikely to be something you can change. I agree with one of the above ideas that you should offer to pay for the person to stay in a hotel or another rental perhaps. Tenant rights are a bit tricky, especially when it comes to the owner of the property being the renter. Highland Park is a hot area as it is still "affordable" in many parts. A few things do sound a bit fishy for your deal! I know you posted this a while ago, so it would be interesting to hear what happens in the end. Best of luck to you!
@Account Closed They passed on our offer (to release funds half way through the 45 day escrow) to help with moving costs. The offer they went with was the same as ours, but with the LeaseBack they wanted.
However it's status has not changed to Pending or anything since we were denied. I'm sure it's a *****how.
I'm convinced the endgame for this person was to squat.
Yeah, I would have to imagine you are correct here. Your offer was pretty strong to get denied and their requests were fairly unusual, especially for the current market. Still amazes me what some people will try! Hopefully your next go-around won't be as exciting!!!
Hey @Lucas , you know I had a similar situation with a house I bought in Corona. I bought it with a seven day leaseback to the owner which didn’t seem like a big deal at the time. He was going to use the time to move into their new house which closed on the same day. The owner wouldn’t leave after seven days (The backstory is the family family was a little bit peculiar, neighbors hated them, and the Live-in adult daughter was mentally “not all there” and distraught at the prospect of leaving their home of many years). I was faced with the prospect of having to go through a formal eviction which would take months and scuttle my hopes of a quick flip as far as carrying costs and timing. But I knew that they had bought a house so they weren’t going to leave it vacant forever. My agent had a stern conversation with him and they were gone two days later. I don’t know if I would get myself into such a situation knowingly again...unless it was a good deal, which as you know, in LA are super rare...the risk may be worth it but you would definitely want to structure the deal in a way that protects you from the costs of eviction and have some professionals on your side!
BUT, my circuitous point is that we are dealing with humans and the owners motives may not have been nefarious. Sometimes selling a home is something people only do once in their lives without much real estate knowledge and knowing they will have to move somewhere VERY different. It can be scary. Human emotions come in to play. People are not logical when it comes to what they’ve decided they are owed or deserve. I don’t know if your owner was really intending to squat but they obviously felt a strong emotional need to have their terms acknowledged...this is when a good agent shows their worth and when clueless agents can sometimes get in the way. There’s not much you can do in that sort of situation...work with them while protecting your backside if there is enough desire on your part, or just move on. It is def a human game...and there are always more deals!
@Roy Kwak I totally get the emotional aspect. I don't immediately assume people are bad, but always follow the axiom of "Trust, but Verify". So when I did a title pull, I googled the owners because neither of the names on the title matched the name of the 'owner' I was introduced to.
Turns out one of the owners goes by multiple aliases and has multiple judgements against them for not paying people what they were owed. Combine that with the owner clearly not wanting to give the property up (divorce), and the strange, long term leaseback contingency, I can say that my hunch is strong and the red flags raised high.
Someone might want to take on the problem, but with a current tenant upstairs paying 40% below market rate, and the current owner possibly renegging on their agreement without repercussion other than a formal eviction, I can say it's not a risk I was willing to take. Worst case for me would be paying multiple thousands of dollars to subsidize other people's housing.
I don't want the property that bad. Some might have the patience and bankroll for those shenanigans, but I don't. haha
@Lucas Allmon Haha, got it! Sorry didn’t mean to imply that you were doing any thought crime...Lol. I get sensitive to the human side of this business...but, esp with the info about the aliases, yeah run the other way man!!!...that’s crazy.