New Property, No Tennant Lease In Place??
We're getting ready to close on a house converted to a duplex. The upstairs is now vacant but the downstairs has tennants that have been there at least 6 months. The listing agent has told my agent that there is no signed lease nor security deposit. I've asked for something in writing from the owner saying as much, but now i'm wondering if i should also talk with the renters themselves prior to closing...The owner is not in the U.S. and i'm not so sure i trust everything he's told the agent anyway (rent amount for the upstairs was wrong, utilities paid by owner/renter were wrong), or maybe it's just a lazy lister, i'm not sure. I do see a potential problem though, if i don't have things clear before i sign the final papers.
How would you approach a tennant in a property you're purchasing? I figure i'll just ask if they have a lease or gave a security deposit but how in the heck do i let them know they're going to have to sign a lease and give a deposit in order to stay without scaring them off and getting the place trashed?
Consult your real estate attorney now -- before settlement. Discuss adding an addendum to your contract that makes the seller liable for any security deposit disputes, and make sure that liability survives settlement.
Have your lawyer prepare an estopple letter that you can give to your tenant. The letter will ask the tenant to certify the terms of his "lease", the monthly rent, and the amount of the security deposit. If the tenant claims that a security deposit was paid, then have your settlement attorney give you a credit for the security deposit in addition to the prorated rent.
You say the property was converted to a duplex. Was the conversion approved by the county building inspector pursuant to a valid building permit? You may want to discuss this with your attorney as well, and if you are assumiong any risk add another provision to your addendum that makes the seller indemnify you. Ensure that this provision also survives settlement.
As far as the current tenant is concerned, I suggest you talk with the tenant. Tell the tenant that you are purchasing the property and let the tenant know what you plan. If the tenant is forewarned, you might not have any resistance when you bring around an annual lease and ask for a security deposit.
DaveT is absolutely right. Have a chat with the tenants. Ask them what they like and don't like about their apartments. What works and what needs fixing. You might get a long list of minor complaints, but you'll also break the ice with the tenants and start a to-do list for yourself. You're bound to see some low hanging fruit you can take care of right away after closing. If you intend to be a more hands on landlord than the previous owner, show the tenants you're interested in having a positive relationship with them. They'll probably be more than willing to sign a lease and produce a security deposit.
Good luck
[addsig]
Thank you both for your responses
The estoppel letter is in the making and i've sent a long list of things i need before closing to the realtor, including a copy of all written leases or a written statement there is none, a description of all oral agreements with the tenants, a list of any unresolved disputes between seller and tenants, a list of all deposits being held by seller including any claimed offsets against the deposits.
The duplex is indeed legal and has been one for over 20 years. I had already spoken with the upstairs tenants (they were moving out when we went thru the house the second time) and was told they were moving because the landlord was evasive, didn't fix things and the rent was too high for what they had. That's also when i found out the rental amount was more than the landlord/listing agent says it was. The downstairs tenants i hope to see today and get a line on their concerns. I know i plan on replacing both toilets (water hogs and owner pays water), faucets and putting in new windows ASAP, as well as putting a lock on the front and back door to protect the entryways from vandalism. It's a very old house (built in 1880), and whilst it needs work, it seems to need less than any others we saw. Doing the home inspection tomorrow morning, so we'll see.
Oh, have i mentioned lately that i really appreciate this site and it's members? You all give me the confidence to speak up and DO SOMETHING!!
Becki