HELP! Buying a Chicago Property with Defaulted Tenant

[Connor O'Brien]

Hi All, 

I am currently in the attorney review period buying a 2-flat in Chicago. My attorney demanded the bottom unit be vacant by closing as seller had given 30 day notice to a month to month tenant when it was put on the market. The seller's attorney letter stated the following: 

There was no security deposit 

Tenant ceased paying a few months ago 

They cannot find the lease but " (it) expired long ago and the tenants are month to month." 

"The first floor tenant has been properly served with a 30-day notice to quit the premises, and the time has elapsed. An eviction has not yet been filed" 

I plan to: 

Ensure there was never a security deposit. If there truly never was one I want to offer the tenant cash for keys. 

Is there a legal document I need to have the tenant sign when they leave the premise? If so can I deal with the tenant directly before closing? 

Also, the second floor lease was also "lost" and expired. Can I provide this tenant with a new lease before closing? They currently use CHAC. Do I need an inspection or anything else to continue receiving the voucher? 

Thanks for the help!

-Connor

[Nathan Gesner]

@Connor O'Brien it doesn't matter if there was a deposit or not. You should not buy the property until the tenant is completely out and you have verified this. Why on earth would you inherit a tenant that is months behind on rent and then offer him cash to leave?

The seller needs to evict the tenant legally and hand it over to you vacant. That's the only option you should consider.

As for the upper unit, you should contact CHAC and verify the requirements. I highly recommend you contact them now instead of waiting until closing!  I don't think CHAC will make payments without a current lease agreement so you can ask if they have a copy of it. If not, you will likely have to draw up a new one. They will definitely need your information to provide payments and you will have to meet deadlines to ensure everything is set up in time to receive the first payment. I'm not familiar with your state but I don't think they will require a new contract because contracts transfer with the sale of the home.

I do highly recommend an estoppel certificate. What is it? I'm glad you asked!

Your offer to purchase should include a requirement that Seller provide all documentation and agree to sign an estoppel certificate (also called estoppel form or agreement). The estoppel certificate is a form filled out by the tenant and then confirmed by the Landlord. It's supposed to ensure there are no surprises after closing. For example, you buy the place and the tenant could claim the Seller allowed them to paint the walls black or that their security deposit was twice what the Seller claimed. 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: CLICK HERE

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.