Mid Lease Rent increase?

Question

I am buying a house with a renter currently in it. He originally was going to move out but now wants to stay for another 5 months. I want to give it to him at his current price for 2 months and then raise the rent $100 starting month 3. This would still have him under market by 100 to 200. Does anyone see any legal problems with this?

Would I be best to just sign a 2 month lease and then a new one afterwards?

I think he is concerned I am going to force him out and not honor what I told him I will do.

Thanks!

Would I be best to just sign a 2 month lease and then a new one afterwards?

I think he is concerned I am going to force him out and not honor what I told him I will do.

Thanks!

Taylor McClung · Answer

Hi @Mike Landry,

Some things to consider:

If he is on a lease, you have to abide by that lease agreement as the new owner.

If his lease is up now, would you consider making him sign a month-to-month rental agreement? If so, then all that would be required of you is to serve him 30 day (or 60 day in some cases) notice that you will be raising rent.

If he will be on a 6 month or 1 year lease (or whatever length of time for that matter), you can write it into the lease that the rent will be such and such until this date, and then it raises to the new rate on that date. That way, he doesn't feel like you're just trying to get rid of him through higher and higher rent raises. He will have documentation which may make him more comfortable.

Last question, why are you keeping rents below market value? Is your market lean with prospective tenants? I have high demand where I am at, so we keep our rates at or slightly above market rate. If people want to move out and not pay that, we know we can get another tenant in their quickly.

Hope this helps. Let me know if you have any other questions.

Aaron Montague · Answer

@Mike Landry

One more detail: you need to decide who owns the property on the day of closing.  This determines who pays taxes for that day, how much rent comes your way, water bill, etc.

Mike Landry · Answer

makes sense.  I'll call the title company.  This guy never put down a deposit. The owner got lucky because the renter stayed for 4 years and took good care of the place.

Beth L. · Answer

@Mike Landry

When we closed on a property with tenants, the attorney doing the closing asked for the leases so that he could obtain the security deposit amount and monthly rental rate. The security deposit and the prorated rent was allocated from the seller to me on the closing documents. The seller had no say in this. Even if he had not collected the rent from the tenants for that month, the prorated rent was to be given to me.

Not sure how a title company will handle this, but that's what our attorney does.

Fred Heller · Answer

The escrow company will pro-rate the rent, property taxes, etc. when you close. The amounts you owe the seller and vice versa will be listed on the HUD-1 settlement statement.

Mike Landry · Answer

@Fred Heller @Beth L. @Aaron Montague @Taylor McClung

Thanks for the info everyone.  His lease does revert to a month to month lease.  So I can give him notice of a small rent increase after I close which will make the rate effective march 1.   I'm ok with that but he wants something in writing from me.  I'm thinking I'll just write up a signed letter and tell him what my intentions are...not that I see it having any legal standing....

Next question:

Tenant was originally moving out so it wasn't an issue but now that he is staying, should I advise the title company doing the closing and have January rent prorated from the seller.  Is there an addendum for that?

My other option which I am fairly confident in and we have discussed....The renter will send prorated checks to the current owner and myself without getting the title company involved.

Thoughts?

Beth L. · Answer

@Mike Landry

@Aaron Montague mentioned to have the lease signed before the first, which is a problem if you don't close until Jan. 8th. You have no right to sign a new lease with the tenant when you don't own the property.

You'd either have to have the current owner create a new lease with your terms or make sure that the lease shows that it automatically will go month-to-month and that the current owner agrees not to renew leases while under contract. We experienced this with inherited tenants. We didn't like the simplicity of the current lease and really wanted to sign a new one, but had to wait.

So you probably can't change the lease until effective March 1 at the earliest, or depending on whether you have a 30-day or 60-day notice period in your state during a month-to-month tenancy.

If the tenant does move into a month-to-month automatically with his current lease, that may be the easier route, however, then you are stuck with the wording of the lease and you may not want that. IMO, you should write up a new lease with the tenant at the first, legally-appropriate time, and this should coincide with when you want to raise the rental rate.

Congrats on your new property!

Fred Heller · Answer

@Mike Landry

I can't give legal advice but my suggestion would be to check the lease currently in place. Depending on the termination/auto-renewal wording, you may not have to do anything at all.

The TAR-approved residential lease states that if a written cancellation notice hasn't been received from the tenant before the end of the first term, the lease automatically converts to a month-to-month lease. During the month-to-month lease, the landlord is allowed to increase the rent as much and as many times as he likes, as long as the tenant is given a 30-day notice before the rent increases.

And I do agree that keeping the tenant for another six months works out in your favor. The property will be easier to rent, and you'll be able to get a higher price, in June as opposed to the middle of winter.

Aaron Montague · Answer

@Mike Landry

I'm working under the assumption that his lease renews on the first of the month.  If you don't get him to sign a new lease before the first of January, his December lease will move from 12 month to month-to-month automatically.  If you are going to do a lease like @Guy Gimenez suggests, make sure it is signed by the end of December.

Tenants, strangely, are people :)  Tell him what you plan on doing and let him know you are raising the rent in March.  At the same time, tell him you'd like him to stay through May so you'll "cut him a deal" by only raising it $xxx when the market would actually bear $yyy.  Heck you might end up with him signing up in June for another year.

Honestly, no one likes to move.

Guy Gimenez · Answer

Why not do a 5 month lease with a rent escalation clause that begins on month 3?

Mid Lease Rent increase?

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