Inheriting Tenants- No proof of lease, verbal agreement only

Jacob Haskins · 2022-08-18T14:16:32-07:00

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their application looks good), which would still be below market rent but fair since their unit is in good shape, just outdated.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 CopelandBusiness Member

Real Estate Broker · Tampa Bay/St Petersburg, FL · Member since 2015 · 1k+ posts · 2k+ votes

4y

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.

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Chris Davidson

Real Estate Agent · Boise, ID · Member since 2016 · 1k+ posts · 888 votes

4y

@Jacob Haskins what @Jeff Copeland said is gold. Hope you can get that taken care of. Sounds like a lot was not taken care of during the due diligence phase, however after you close one thing I have done with inherited tenants is fix any issues with the place, and if none update something relatively cheap and state these are going to be the new lease terms. You always have the issue of tenants not wanting to pay the new landlord as the old guy just did what ever and came for a check when it was convenient. But if you come in nice and firm you have a better chance. However a 46% increase in rents while it may be market could cause a lot of anger and lead to further issues. If you can float it might be better to give both notice to vacate. Relist the better unit and remodel the worse unit.

Each situation is different but there is always more than one way to make it work. Best of luck!

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Patrick DruryBusiness Member

Real Estate Agent · Columbus, OH & Cleveland OH · Member since 2021 · 1k+ posts · 2k+ votes

4y

@Jacob Haskins
It is extremely necessary you get an estoppel before closing.

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Bill B.

Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes

4y

What’s your plan when the tenants ask for their $20,000 security deposit to be returned?

Does your state require interest to have been paid for the last 10 years?

What was the condition at move in so you know what you can deduct from the security deposit the seller gives you at move out.

It’s fine you seem completely lost and don’t know what you don’t know. It’s not fine that the “experts” helping you seem oblivious. You seem obviously in no condition to clo tomorrow.

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Jacob Haskins

OP

Rental Property Investor · Rogers, AR · Member since 2018 · 25 posts · 19 votes

4y

Quote from @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.

@Jeff Copeland This is exactly what I needed to hear! I would love an estoppel if you could send it to me, I will reach out. I will be doing a final walk through tomorrow before closing, so this would be a good time to get the tenants to fill this out! If not, we will likely delay until Monday or Tuesday.

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Nathan GesnerBusiness Member

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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes

4y

Your offer to purchase should include a requirement that 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.

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Inheriting Tenants- No proof of lease, verbal agreement only

Inheriting Tenants- No proof of lease, verbal agreement only

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