Taking over existing tenants
Member since 2023 · 2 posts · 0 votes
Taking over existing tenants
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Real Estate Broker · Hyde Park Tampa, FL · Member since 2019 · 2k+ posts · 3k+ votes
3yI recommend you do none of that...you want to buy the property, not the seller's problems and inherited tenants can be challenging. I recommend that you write your offer to take 'vacant possession' upon closing. That will leave it to the seller to give notice to the month-to-month tenant that the lease will not be renewed and to negotiate with the other tenant on an early departure. It is easier to acquire new tenants at a new price - and on YOUR lease - than to assume the tenants based on the seller's lease which you must honor fully until maturity. That means that you would only be able to raise the rent on the MTM tenant and not the other one.
Most contracts have a stipulation that within 3 to 5 days after an executed contract, the (copies of) leases/rent rolls/more are to be turned over to the buyer as part of the vetting process. You may find at that time that there are no security deposits or actual leases in place. The closing agent will arrange for the transfer of any security deposits at closing and will prorate the rent.
Again, if you buy a property with the tenants in place, you bought their leases too. Please consider vacant possession as a condition of the sale and then acquire new tenants on your lease, with security deposits, your rent price, your screening completed, and renter's insurance in place.
Best...
5 Replies
- 3yTheresa HarrisPro MemberMember since 2019 · 15k+ posts · 11k+ votes
When you put in the offer, state that you want certified copies of the lease and the full security deposit transferred to you at closing along with prorated rents (in case you are not taking possession on the 1st). Also make sure both tenants know that they need to pay you the rent and how to do that. At the same time, give them your contact information.
For rent increases, the one that is on a lease, you have to honour the terms of that lease. Find out what the local laws require for notice of rent increase and if there are limits. Then at the appropriate time, serve them with notice of rent increase.
- Real Estate Broker · Hyde Park Tampa, FL · Member since 2019 · 2k+ posts · 3k+ votes3y
I recommend you do none of that...you want to buy the property, not the seller's problems and inherited tenants can be challenging. I recommend that you write your offer to take 'vacant possession' upon closing. That will leave it to the seller to give notice to the month-to-month tenant that the lease will not be renewed and to negotiate with the other tenant on an early departure. It is easier to acquire new tenants at a new price - and on YOUR lease - than to assume the tenants based on the seller's lease which you must honor fully until maturity. That means that you would only be able to raise the rent on the MTM tenant and not the other one.
Most contracts have a stipulation that within 3 to 5 days after an executed contract, the (copies of) leases/rent rolls/more are to be turned over to the buyer as part of the vetting process. You may find at that time that there are no security deposits or actual leases in place. The closing agent will arrange for the transfer of any security deposits at closing and will prorate the rent.
Again, if you buy a property with the tenants in place, you bought their leases too. Please consider vacant possession as a condition of the sale and then acquire new tenants on your lease, with security deposits, your rent price, your screening completed, and renter's insurance in place.
Best...
- Honolulu, HI · Member since 2008 · 3k+ posts · 2k+ votes3yAloha,
Requiring the Seller to remove the Tenants can cost you a potentially good deal. They have already had all the headaches they want...they do not want to make one last stand! If anything, having lousy tenants in there gives you more bargaining power on price and terms.
In any event, you should have in your offer an entire section devoted to Rental related items. You do need a copy of the current Rental Agreement and all addendums; a current Rent Roll or Delinquency report showing payment status, name and contact number/email for all Tenants; Security Deposit balances for each Tenant and instructions to transfer them to you at closing, along with any pro-rated, pre-paid Rents; and an estoppel agreement signed by Seller and Tenant confirming the key terms of the Rental Agreement. Also, you want any product warranty information for appliances etc.; copies of contracts for any on-going service such as yard, pool, or any preventative maintenance items. You need information on every utility account that Owner is paying, so you can transfer effectively after closing.
You need to include instructions for the Seller to notify Tenants of Change in Management, effective approximately XX Date. This notification/introduction would include your basic contact info and Name/Company/Agent that will be Managing once the transaction is closed. This notice would not be given until contingencies and funding are cleared, and you are locked in, just waiting on Escrow's timetable.
Once the transaction is completed, you should immediately send or deliver a new notice to all Tenants with additional contact information, for accounting questions, maintenance requests, and whatever methods you prefer. You should also at this time notify them that you will be contacting them within a week to schedule an inspection and meet with them to confirm some information. At that meeting, you are gathering information...closely inspecting all areas, looking for signs of any leaks, termites, rot, and of course wear and tear as well as housekeeping in general. ASK the Tenants if everything is working properly, or if there are any uncompleted OR unreported repair issues. Ask who owns the appliances? who mows the yard? clears the snow? What vehicles belong to them, and where are they parking them? Reconfirm with them the monthly rate, Deposit amount, end of current term. Inform the Tenants at this point that their current agreement WILL be terminated at the earliest date per local law, or a longer time period based on other factors.
You will provide them an application to complete and submit if they are interested in remaining, however at this time the rate is undetermined. (You need to evaluate everything you learned during the inspection and conversation, decide on repairs/upgrades that need to be done, then re-evaluate the market based on all of this). Once you have determined the new rate, and developed YOUR Rental Agreement and YOUR Terms, provide them a copy of the Agreement to review, and inform them of the new pricing. Give them a reasonable deadline to complete and submit their application or vacate by the date of non-renewal. Depending on the overall timeline, length of tenancy, and general conditions, I would try to provide 60 - 90 days. You want them out...not angry and out!
Once the units are vacant, be thorough with your repairs and updates. EVERYTHING should be fully functional, secure, and in good or new condition. Anything less, and you will not likely attract the top 10% of market Tenants that you want. - Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes3y
I would prefer to buy it empty. Start fresh with your own renters and rules. If you are going to take over existing renters, I recommend the Seller provide all documentation and agree to sign an estoppel certificate (also called estoppel form or agreement). The estoppel is a form filled out by the tenant, then confirmed by the Landlord, then accepted by the Buyer. It's supposed to ensure there are no surprises after closing. For example, I often see Buyers purchase property thinking there is a $1,000 deposit but then the tenant claims it was actually $2,000 because they paid the last month's rent. 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: Sample Estoppel
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.
The DIY Landlord Book4.7247 Reviews - Member since 2023 · 2 posts · 0 votes3y
Thank you all, you have given me a lot to think about and discuss with the seller. Especially the estoppel paper work . And the confirmation of deposits. This was a deceased family members property so tracking down the leases and agreements should not be a problem
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