Inheriting Tenants- No proof of lease, verbal agreement only

[Jacob Haskins]

Hello BP community!

Tomorrow I am slated to close on a duplex, and I will inherit tenants.  The seller has stated they do not have any paper leases, as everything is verbal.  The tenants are long-term (about 10+ years), and he just drives to the property and collects a rent check every month.  The seller has never raised rents in the 10+ years he has owned it.  I know what they currently pay, but I know nothing else in regards to security deposit or anything.  The closing company was supposed to receive said "leases" so they could prorate the rent and credit the security deposits to me at closing, but they (of course) call me the day before and gave me this news.

I will be asking tenant A to move out because the unit is trashed, and it will need to be rehabbed/updated so I can get market rent (around $1250).  As far as tenant B, I was just planning to get them to fill out an application and sign a month-to-month lease after closing.  The plan is to increase their rent from $750 to around $1100 (if their application looks good), which would still be below market rent but fair since their unit is in good shape, just outdated.  The thought behind doing Tenant B in a month-to-month is that I will not be locked in to having that other unit below market rent, and I can have flexibility around that unit if we needed them to get out for renovations as well.  I know Tenant B might not agree to the new lease (which would be fine) as we have built in a "holding period" into our analysis if they decide to leave.  

I want to hear from the BP community around this situation. Is it necessary to get an estoppel since I am planning to get Tenant A out, and then asking Tenant B to sign a lease?  Should I fear that the tenants may "squat" if I do not get a new lease/estoppel?

[Jeff Copeland]

If there is still time, GET ESTOPPELS FROM THE TENANTS!

Otherwise, what do you plan to do when Unit A tells you he paid first, last, and security when he moved in 10 years ago? Did you get those funds at closing? If not, now you're eating them (or trying to argue with the tenant in court in a messy, paperless legal battle, where the judge may lean towards the tenant since the landlord has no paperwork to prove otherwise). 

Or when Unit B swears that she paid her September rent in advance back at the beginning of August and shows you a hand written receipt reflecting the same?

Tenant estoppels are so simple. They simply state the terms of the lease, the amount of the security deposit and any prepaid rent, and the current status of rent payments. And your title company is 100% correct in asking for them to make sure deposits and prepaid rents get transferred properly at closing. 

If you email me, I'll send you a blank tenant estoppel.