Terminating a tenant lease so I can move into a building

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Terminating a tenant lease so I can move into a building

Dan McGrew
Chicago, IL · Member since 2017 · 8 posts · 3 votes

I live in Chicago, and I'm closing on a 4 unit property in a couple weeks.  We plan to make one of the units in the building our primary residence.  The mortgage laws, as I understand them, require us to move into the building within 60 days of close.  None of the units' leases expire before the end of that 60 day period.  I can't get a clear hold on the local laws as to whether I can terminate a tenant's lease without cause just due to the building being sold (and now me becoming the owner).  It just seems crazy to me that the laws would require us to move in within 60 days given that this might not always work out very easily.  Is that because the new owner can always terminate a lease at their choosing when they purchase a new property?  Or is the expectation that if timing doesn't work out, that I as the new owner offer a tenant some money in order for them to accept an early termination?

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Jason D.
Rental Property Investor · St. Petersburg, FL · Member since 2017 · 3k+ posts · 4k+ votes
8y
As I understand it, Chicago tenant laws forbid you from evicting a tenant without cause. They have to be in violation of the lease in order to be evicted. If they have violated the lease, there are different processes depending on the violation. The mortgage "law" that you have to move into the property within 60 days has nothing to do with the tenants, it is based on the loan that you have. You will probably have to acquire a different mortgage or risk defaulting on the current one because you will not be occupying the property. You can try to do "cash for keys" and offer a tenant a sum of money to mutually break the lease, but I would get legal advice before going through with that.
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  • Jason D.
    Rental Property Investor · St. Petersburg, FL · Member since 2017 · 3k+ posts · 4k+ votes
    8y
    As I understand it, Chicago tenant laws forbid you from evicting a tenant without cause. They have to be in violation of the lease in order to be evicted. If they have violated the lease, there are different processes depending on the violation. The mortgage "law" that you have to move into the property within 60 days has nothing to do with the tenants, it is based on the loan that you have. You will probably have to acquire a different mortgage or risk defaulting on the current one because you will not be occupying the property. You can try to do "cash for keys" and offer a tenant a sum of money to mutually break the lease, but I would get legal advice before going through with that.
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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    8y

    You've chosen to get a owner-occupied loan that requires you to move in within 60 days.  You have other choices both for loans (that don't have this requirement) or properties (that aren't fully occupied with existing leases.)  So, this is a situation of your own creation, not some set of laws that has backed up into a corner.

    No, you cannot just kick a tenant out because you need to move in.  The existing leases remaining in force when you purchase.  You must honor those, including when you can terminate a lease.  So your only option is to offer one of the tenants some cash to move out.

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  • Chris Titcomb
    Real Estate Attorney · Chicago, IL · Member since 2014 · 89 posts · 66 votes
    8y

    @Dan McGrew, most Chicago leases do not contain early termination provisions (although that's not to say I have not seen one thrown in a lease here and there).  You'll need to read through each lease to see what landlord rights are provided.  Otherwise, cash for keys will be your second best option because you 100% cannot unilaterally terminate a tenant's lease based on the sale of the building (unless that right is provided for in the lease).  

    The 60-day period you're referring to is the mortgage's Occupancy provision.  This provision is standard for primary residence mortgages.  Here's the exact verbiage:

    "Borrower shall occupy, establish, and use the Property as Borrower’s principal residence within 60 days after the execution of this Security Instrument and shall continue to occupy the Property as Borrower’s principal residence for at least one year after the date of occupancy, unless Lender otherwise agrees in writing, which consent shall not be unreasonably withheld, or unless extenuating circumstances exist which are beyond Borrower’s control." 

    This provision is really somewhat of an "intention test".  As you can see, the language in the provision allows for extenuating circumstances as well as lender consent.  If you're closing in a couple weeks, you should consult your attorney and seek his/her advice.  Otherwise you could be in non-monetary default if you fail to occupy the property within that timeframe.

    Ultimately, however, good luck with the house hacking!

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  • Dan McGrew
    OP
    Chicago, IL · Member since 2017 · 8 posts · 3 votes
    8y

    Thanks for the helpful replies @Jason DiClemente and @Chris Titcomb.  I think I've got an avenue with one tenant, it's just not the unit we'd like to move into.  I'm also pursuing cash for keys with the unit we'd like.  Lastly, one of the units' leases ends a couple weeks after we need, so an extra route might be requesting a 2 week extension from the mortgage company.  So luckily we've got options, which should get us to where we need to be.  We just might not get to move into the unit we'd like until later in the year, which was what I was hoping we'd be able to find a solution to.  Your answers were helpful though, so thanks!

    @Jon Holdman, I wish you a happy new year filled with good friends and family

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  • Brie SchmidtBusiness Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    8y
    Originally posted by @Dan McGrew:

    I live in Chicago, and I'm closing on a 4 unit property in a couple weeks.  We plan to make one of the units in the building our primary residence.  The mortgage laws, as I understand them, require us to move into the building within 60 days of close.  None of the units' leases expire before the end of that 60 day period.  I can't get a clear hold on the local laws as to whether I can terminate a tenant's lease without cause just due to the building being sold (and now me becoming the owner).  It just seems crazy to me that the laws would require us to move in within 60 days given that this might not always work out very easily.  Is that because the new owner can always terminate a lease at their choosing when they purchase a new property?  Or is the expectation that if timing doesn't work out, that I as the new owner offer a tenant some money in order for them to accept an early termination?

     Your agent should have told you this and have worked something out with the seller before ever writing up the contract.  

    If you are putting less than 25% down, your only option is having the seller buy out a tenant and get them to agree in writing to moving out before you close.  Not all seller's will do this and this should have been an upfront conversation.  

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  • Federico Gutierrez
    Realtor · Cleveland, OH · Member since 2015 · 2k+ posts · 857 votes
    8y

    I'm assuming you bought using FHA financing, which yes 60days to move into the property.

    Options you have are 30day notice to any tenant that is on a month to month lease and telling them you won't be extending/renewing.

    If any tenant does not pay rent on time then post the 3day to pay or quit. YOU might get lucky considering Xmas was just around the corner they might be strapped for cash so you can work out with them, leave ASAP and I won't dig you with an eviction on your rental history

    OR pay cash for them to leave, keys for cash. 

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  • Lumi Ispas
    Real Estate Consultant · Chicago, IL · Member since 2014 · 720 posts · 439 votes
    8y

    @Dan McGrew , I believe you got the right idea by now from all the answers that you can't terminate any of the leases without cause.

    At this point, you have two options. If your lender had received and reviewed the leases and is not asking you to show termination of a lease, you can move forward and do your best to talk to all tenants and see if any of them wants to move out sooner than their lease expiration so you can move in the building within the 60 days required.

    The other option, if your lender won't budge, is to delay the closing until you are within 60 days from the earliest lease expiration or have the seller buy out one of the tenants.

    Good luck.

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