Tenants with no lease???

Question

Hello fellow BPers,

I am looking at a triplex and duplex in the Pittsburgh area.  During my due diligence of property evaluation I ask for copies of current leases and to my surprise (maybe not so much a surprise anymore) the owners of these properties did not maintain the leases so the tenants are month to month with NO signed lease.  Just wanted to know if this makes these properties risky or if I could protect myself by making a statement in my offer that the tenant must sign a lease upon closing (or the owner must present an up to date lease).  Any issues or recommendations here?

Eddie Werner · Answer

Thank you for the responses.  I think I will proceed with these properties and just discuss the strategy with my PM company if the numbers work out and they accept my offer.

Account Closed · Answer

Hello. I would find out more info first, such as how long have they been there, do they pay rent on time, does the owner have an application they filled out, was there a lease originally and it just went month-to-month at some point? If all checks out ok, I would have the tenants sign your lease, not the owner's.

I don't think it matters if they sign it before or after closing, unless there is no lease at all in place, even a month-to-month one. If there isn't, definitely have them sign one before closing.

Shaun Reilly · Answer

Do you want them on a longer term lease or just a Tenant At Will month to month type?  I would imagine they wouldn't balk at signing a new month to month lease that has basically the same provisions that they are living under.

If you want to jack up the rent or make some major changes (Like saying no pets but they all have pets) then you might get push back or have people leave.

I'd get the tenants to verify what the landlord told you and them ask them to sign your documents which will go into effect subject to you actually purchasing the property.

Jerry Kisasonak · Answer

@Roy N.

I've added the "Don't turn the furnace off in the middle of winter while you go on vacation" clause to my lease, so I know exactly what you mean. Also, the smoking and pets clauses is standard stuff too. In my comment I was basically speaking to those landlords who have an ineffective business model and think that papering over it will eventually solve it.

Andy Robison · Answer

@Roy N.  I'm sure some lawsuit would be brought agianst you for the use your brain clause. "Who is he to tell me to use my brain. I just wanted to deep fry a turkey on the bed last night...."

Roy N. · Answer

@Jerry Kisasonak

We started out with the standard government lease which is 4-pages of actual lease and 5 pages of excerpts from the Residential Tenancy Act which explain the obligations of both parties.

To this we had added our "Schedule A" which contains the "House Rules" applicable to all our properties.  Initially it was the basics: no smoking, no pets, etc., but over time this has grown to 4.5 pages.  Most of that additional 4-pages contains items that a) our insurer insists we make clear to the tenant or b) the Rentalsman has decided are behaviours that, while most would consider common sense, we should not expect to occur to the tenant without explicit instruction {like, don't turn the heat off in the middle of winter when you go home for Xmas vacation}.

As I mentioned above, I would love to have only one or two clauses:

a) Be respectful;

b) Use your brain.

But, I'm told that would be too vague.

Jerry Kisasonak · Answer

@Ian M. makes a good point. Leases are not necessary for good tenants. This applies to all walks of life... the law is not necessary for good people - they do the right things without being told to do so.

I sort of chuckle when I hear on investor say that his/her lease is 40 pages long. They obviously either don't buy the right property and renovate it correctly, or they place bad tenants. Then, to fix this problem, they think that adding additional clauses to their lease will cover it. And, in a few years, they end up with a 40 page lease and and still have tenants who would break the lease even if it was only one page!

Pete T. · Answer

I would be more concerned w/ the payment history.  It is probably a good thing to give you time to see if they are tenants you want to keep.  Long term leases are ok once you got the right tenant, but the laws in VA all favor the tenant and it can be hard to get rid of tenant that isnt blantantly breaking the terms of the lease.  They have many ways to get out of the lease if they no longer wish to abide by it anyhow.

Marcia Maynard · Answer

Due diligence with your inspections of the property is key and can help you negotiate better terms for purchasing, so you definitely need to see inside each unit.   It's helpful to read the terms of the leases/rental agreements of the previous owner to gain insight on tenant expectations.  But if there are no written agreements in place it won't much matter in the long run.  Don't worry about it.  Our lender has never asked to see a lease agreement on a residential property. The rent registers and income history on a property are more telling.

When we buy an occupied property we move quickly to have the tenants sign our own rental agreements.  With residential properties we prefer month-to-month rental agreements.  No need to ask for tenants to sign a lease with a previous owner before closing.  It would complicate the situation more if you did.

Once you have the property, make a fresh start with the tenants.  Start with a warm letter of introduction and don't raise the rents immediately unless you want the tenants out.  Those long term tenants might appreciate a more stable written agreement with you as the new owner.  Well written rental agreements protect both parties.

Ian M. · Answer

@Eddie Werner, to be honest, I'm not so sure its a bad thing to not have a lease.  I would actually prefer it as i would prefer my tenants to be on my leases not someone else's that i am unfamiliar with.  If they were in a lease, you would have to honor the terms of that lease until it expired and you could them on your lease.  The only place I would see that being a problem would be with the bank as mine usually asks to see leases.  You could alleviate the issue with estoppel letters (letters to the tenants asking what the current terms are that they are living under, to include rent obviously, as well as other terms).  This would help you vet the tenants as well as the seller to see whether he is telling you the truth about the terms.

To be honest, i am coming to the conclusion that that only person a lease hurts are the landlords. Some tenants could care less about them and leave you in the middle of the night/not pay, etc... at which point you could spend more money to chase them down and get a judgement against them than it would take to clean it out and rerent it.  I know @Jon Holdman usues only month to month for that reason as well.  i still use them as good tenants tend to abide by them, but im on the fence at the moment.

Tenants with no lease???

Most Popular Reply