What are the logistics of inheriting tenants?

Question

Hi,I have a question about the logistics of inheriting tenants in properties I'm buying. Specifically about how the leases get transferred to me as the new owner.Suppose I have a tenant who is on a long term lease that has several months to go. My understanding is that I'm obligated to honor the terms of the lease he signed with the seller, even though I never signed that lease. For instance, as long as they pay their rent, I can't kick them out before the lease expires. (Not that I want to, just laying out the facts). The leases they signed commit them to pay the seller of the property. The seller's name, not mine, is on the lease. What is it that legally binds them to stop paying him and now pay me as the new landlord? Do I have to ask them to sign a new lease, with me as the landlord? Or does the old lease bind them to pay me now that I'm the property owner? Is there an official notification that I can give the tenant that obligates them to pay me?I'm thinking of something along the lines of a mortgage transfer - i.e., when my lender sells my mortgage, they notify me that I have to send my payments to someone else, even though I never signed a mortgage with the new note holder. Is there some similar process for leases?Thanks in advance for any insight you can offer.Joel

Bjorn Ahlblad · Answer

Your PM is showing you how they will behave moving forward. Be thankful, take the clue and get another PM!

Joel Fine · Answer

I hear you, @Mary Mitchell and @Jill F. You make some good points about the PM.The PM is flat refusing to do a month to month lease, despite my request to do so. They are insisting that we use their 12 month lease form. So I guess my options are to accept this, or find another PM.

Jill F. · Answer

@Joel Fine I would never, ever want to commit to a term lease with tenants I didn't choose without a chance to get to know them first; and even then (in Ohio), a lease gives the tenant way more protection than it gives a landlord so if the tenant doesn't have a good credit score to protect you essentially just gave away your only other leverage which is the right to do a 30-day non-renewal.

Mary M. · Answer

The leases the tenants signed probably say somewhere that the lease can be assigned to a new owner and that all obligations etc would go to the new owner. as for your PM - They are telling you they want to use their legal document... tell them it is fine to use their forms, but you want the terms to be MTM.

Laura Kayes · Answer

Hi Joel,I am in Texas, so I'm only speaking from my point of view here/knowledge as a PM. When an investor purchases a property with tenants in place, the existing lease stays in place, however we send out an email, an official letter and place a phone call to the tenants letting them know that their is a new owner/PM and detailing to them how to pay rent moving forward. If the tenant tries to pay the previous owner, that owner should turn the payment away and direct it towards you, however even if they don't do that, since you are the new property owner and have supplied the written notice ^^^ they need to pay you moving forward. Hope that helps!

Account Closed · Answer

When you purchased the property, the previous seller relinquished their interest in future rents, provided via the lease, to you. The previous owner, in a way, defaulted on their contractual obligations with the tenant by selling the property to you before the lease terms expired. However, this happens all the time and so, most states or localities have laws protecting the leasehold rights of tenants. Generally speaking, when you purchase the bundle of rights, you also purchase the liabilities too, and so the long-term lease would extend to the new owner. Make sense?As far as the MTM, that is the lease that leaves you the least vulnerable, IMO. The lease that is not yet expired is the one that makes you the most vulnerable, in the event you have a problem tenant. If not, inherited tenants are great - income on day one.

Richard Sherman · Answer

@Joel Fine the PM wants the new lease most likely because in their agreement they get a leasing fee. Are you in the same city as the properties?If they are month to month just leave as is until you figure out what you want to do. ANd tell the PM that they work for you and if they do not like it they can F off ....and I probably would use that exact language to drive the point home. My vendors do not dictate terms to me.....or if they do they better be RIGHT...haha..

Jim S. · Answer

Get a different PM. MTM on inherited tenants. I don't do term leases anymore, even with the tenants I screen.

Chris Lounsbury · Answer

Hey Joel,I would definitely move on from that property manager. They are looking out for themselves, not you, which is a major red flag. Getting those tenants on a 12 month lease with their forms makes their life easier. My owners often ask to leave tenants on a month to month contract as they want the flexibility, especially recently as they look to sell off some of their portfolios. Although its not ideal for me, as at any moment I could be saddled with a bunch of 30 day notices, I completely understand their view points and if the notices start coming in, then I get going on getting new people in. You want to find a manager that puts your wants first. Cut them loose and start reaching out to new managers.Slow to HIRE, quick to FIRE.

Dennis M. · Answer

Yeah basically you buy the lease with the property and your stuck with the tenants and they usually suck to put it bluntly . The old landlords name is now your name and you must honor the leases . Of coarse prior to buying you can put in stipulation clauses and there’s various things you can do to get around this prior to closing