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Updated over 6 years ago, 08/02/2018
General guide for inherited tenants?
Hi all -
We have our first investment property under contract, with an estimated close date of Aug. 12th. The property has current tenants, which have expressed interest to stay. Their current lease expires Aug. 15th, and if closing gets pushed out at all they would go month to month with the current owner, per the lease agreement, however this has the potential to be a very quick turn-around.
I'm assuming I would still run the current tenants through my own screening process. Do I move forward with them filling out the application before I've even closed on the property, along with paying for the credit/criminal/background check? I've sent them the Estoppel Certificate to verify the information with the lease agreement, but how far can I keep going before closing on the property? With it being such a quick turn-around with their current lease expiring I want to have as much lined up as I can, as I don't want to keep bad tenants if they don't pass my screening requirement.
Is there any sort of guide on the site on how to handle inherited tenants? A search on the subject returns many results on specific questions people have had, but with this being our first property I'm looking for a general guide on what I can and can't do before we close.
Thanks in advance for any help or guidance!
Check on your local laws and see what you can do. If everything were to go my way I would have them screened before you own the property, but if you cannot do that then you should see if you can put them on a month to month lease until you can get them screened. You are in a tough spot. Typically when you purchase a rental property and inherit tenants you have to keep the tenant till their lease expires. This allows the new owner to get a feel for the tenant and see if they want to keep them or not.
Good Luck,
Allen Fletcher
The previous owner may be willing to supply any files they have on the tenants. You are bound by the terms of the existing lease. You cannot compel them to pay for a credit check or complete another application--they are already tenants--you can only ask. You would have to evict them or terminate the lease through the usual process in your State if they refuse to leave but they may be willing to leave on their own. Raising the rent at the earliest time allowed in the lease may give them an incentive to move.
@Jason Stratman Have you also checked with the leasing agent to see if you could get the property manager's or landlords criteria on how they screened them, as well as the results from that screening? Perhaps also their payment history and any issues they might've caused while living there. Maybe not enough for what you're looking for, but it might be a good start.
I've written many blogs on questions such as yours, and others have as well. You will find a ton of information by searching the blogs on this site, written by many of us.
What I would like to post again, which will help new landlords understand the nature of this business, is a piece I wrote many years ago, called the Tenant Phase.
The Tenant Phase by Nancy Neville
THE FIRST MONTH (THE HAPPY PHASE)
During the first month of a rental period, the tenant is happy. They wanted the home, they got the home and everything is fine. THEY ARE VERY HAPPY! You spent a lot of time at the signing of the lease telling them what you expect from them and what they can expect from you. They seemed to be happy and they nodded in understanding.
THE SECOND MONTH
Somehow during the second month, when the newness wears off and the happiness falls into a routine, the new tenants become confused. They seem to forget what the rules are and when rent is due (even though they have a written lease agreement to refer to). If they are one of the few tenants who do not get confused during this time, this means they have jumped from the Second Month phase into the TESTING PHASE which may cause a few problems, but I will talk about that in a few minutes.
To help the Tenants not be confused during the 2ND MONTH PHASE, I always bill my Tenants their rent 10 days before it is due. It's during the 2ND MONTH PHASE that I will answer any questions they have and not make them put it in writing.
TESTING PHASE (May begin as early as 2nd month)
The TESTING PHASE is a very crucial phase. Whether the tenants and you get along is determined during the TESTING PHASE. More Tenants than not like to Test the Landlord. If they had gotten away with it with their previous landlord, chances are, they feel they can get away with it with you.... so they will try. They will pay their rent when they want to, putting you last and live the way they want to regardless of your rules.
It is very important to nip this in the bud during the TESTING PHASE, because if you allow the tenant to get away with things such as paying their rent when they want to and doing what they want, then chances are you will never proceed past the TESTING PHASE.
THE THIRD MONTH:
If you make it to the third month, that is good. But it is also very crucial during this time as well to make sure the tenant stays on course. The Third Month strengthens your position as to who runs what. During this time you want to make sure that the tenant keeps paying their rent on time and keeps obeying the rules. One little falter on your part can throw the tenant back into the TESTING PHASE. It is very important that you guide them during this time as to what you expect and want. It is important that you gain their trust and respect during this time.
THE FOURTH MONTH - THE COMFORT PHASE:
The fourth month through the first year is THE COMFORT PHASE: the tenant becomes accustomed to your rules and is starting to feel comfortable. If you have handled everything correctly, being strong when needed to be, and doing evictions when needed, the Tenant will feel secure because the Tenant will know what is expected of them and will feel comfortable and will want to stay. (Tenants usually feel comfortable with stability and sameness).
AFTER THE FIRST YEAR:
After the first year, the COMFORT PHASE becomes more stable and each year thereafter. It's just a matter of keeping your Tenant happy, yet, making sure they don't slip into the Testing Phase from time to time. Even old time Tenants will want to go to the Testing Phase if they see their Landlord falter, get too over generous or too understanding.
When that happens the Tenant's stability changes because the rules are changing throwing the tenant into the Testing Phase again, so we don't ever want to falter but always stay strong and in control.
THE MOVING PHASE:
During the moving phase the Tenant, no matter how many years they have been with you, seems to forget everything again. They become babies and they revert back to the TESTING PHASE. Once again they never refer to the Lease and must depend on you for answers.
During the MOVING PHASE, the Tenant can change personalities quickly. It's like they drank a potion that changed them from Jekyll into Hyde. They become this fiend, this villain that could destroy you and is probably the hardest phase of all the phases.
It is during the MOVING PHASE, that you must be cool, have all your wits about you and be prepared, yet still be cordial so as not to enraged the monster that seems to be lurking in your Tenant during the MOVING PHASE (as there is NO ANTIDOTE to calm the savage beast once it takes form). If by chance this happens, it is best to not confront the beast but to keep your distance until the courts can set it free!
With time everything will fall into place as long as you treat Land lording as a business!
Thanks for all the answers, but I'm still questioning my specific situation...
If I close on Aug. 12th I have to uphold the current lease for 3 days, as it's only through Aug. 15th. At that point it would have gone month to month with the old owner, but they would no longer be the owner... do I screen the current tenants within that 3 days to see if they meet my criteria? If they don't, then what? Extend the current lease by 30 days and give them notice? Can I extend the current lease if it's not even my lease?
I'm probably over thinking this process as I'm just starting out, but with the way the dates are falling with closing and the current lease ending, I feel like I'm in over my head... but I'm sure I'd feel that way even if it was vacant!
EDIT: Just to clarify, I would like to keep the current tenants, because they want to stay and it would be easier on my part, but I want to make sure they are good tenants as I didn't screen them previously.
Hello Jason,
If their lease goes month to month automatically after Aug 15, then I believe you have tenants through Sept 15 and you'd have to go by the existing lease for that time- they haven't been notified that they have to move out Aug 15, right? If you want to change to YOUR lease (I would), then you would give them notice when you close on the property- they would either agree to sign your lease or move out in 30 days (or whatever local laws dictate- in some states if they have lived there for over 12 month you must give them more notice). I would talk to them before you close, or after you close, about what you expect. If they wish to stay, they need to sign your lease, and also go through your background checks, so they need to fill out applications (unless the previous landlord provided enough info on them that you don't need the app, I haven't seen this happen yet), but be a good guy and pay for the background checks yourself. It isn't their fault the property changed hands and the prior owner didn't screen them or provide you with all the info.
The current landlord should be able to provide you with their payment history- are they paying the rent stated in the lease? Are they paying on time? If not, are they paying a late fee?
In my experience, the estimated closing date is usually wrong, but I hope things go that smoothly for you. Also, almost all of the tenants that we have inherited have moved out when their lease was up, and for various reasons. Sometimes it's that the previous landlord wasn't very choosey when placing tenants and either didn't place good tenants or didn't place tenants who planned to be long term occupants. Sometimes it's the turmoil and uncertainty the tenant has gone through during the sale of the property- the showings and inspections, not knowing if a new owner wants tenants in that unit or if they will be raising the rent etc. Sometimes it is that the rents are below market level, and when the rent is raised to close to market level, they choose to move on. Just be aware and not surprised if your inherited tenants already have one foot out the door....
Thank you very much for your reply... your response points me in the right direction. It may seem common sense to most, but the biggest question I had was how the month to month lease would work out since it was with the previous owner, but you validated that my thought process was correct.
Also a very good point with paying the background checks for them. It's a couple that currently lives in the property, so I'm assuming if I use a site like SmartMove I would run a background check on both of them. $70 out of my pocket is well worth the cost if they want to stay.
@Jason Stratman I'm not really sure why you feel the need to rescreen them. The whole purpose of screening potential tenants is because you don't know what they will be like financially or personally before they move in. But you already have precedence with the current tenants - you can see from the rent rolls if they have been paying their rent on time, and you can assess their habits and suitability from the walkthrough of the place before you close. No amount of screening will be better than actual facts from the place they're living now. The only thing I can imagine rescreening for would be a criminal background check for your liability reasons.
If you let them stay on and they turn out to be bad tenants you will likely have to evict them. But if they are bad tenants, you will probably wind up having to evict them with your rescreening method anyway. In my experience, only good tenants leave politely and when they're supposed to, so if you're expecting the current tenants to not put up a fight if they don't pass your screening, you might want to think about saving the money and time required to re-rent and just have them sign a new month-to-month lease in September or October (depending on the lease notice requirements). Hope this helps, and good luck!
Thanks for the insight Paul... it's a really good point.
I have not seen the rent rolls from the previous owner, however... that is something that I am going to have to ask for before close. I appreciate the reply.
I know I'm late to the part here, but in case others are wondering in the future, we always write this into our purchase agreement if we are offering on a tenant occupied property:
1.Within 7 days after acceptance of purchase agreement, seller shall provide copies to Buyer of any leases, tenant applications,12 month rent roll & security deposit info. 2.Security deposits shall be credited to Buyer at closing. 3.All rents shall be prorated between Buyer & Seller to the date of closing. 4.This purchase agreement is contingent upon walk through & inspection of the property to be completed within 14 days of acceptance. Buyer shall have the right, at Buyer's sole discretion, to terminate this agreement based on the property & lease inspections & will receive earnest money in full.
@Jason Stratman I’m going through this currently. What did you end up doing?
@Samantha Soto that’s a great tip, thanks for sharing. Because we didn’t have this in our purchase agreement, we had a very difficult time obtaining all of these needed documents.