Closing on property with an Existing Tenant?

Question

I am (hopefully) closing on my first House Hack duplex (3 bedroom lower, 2 bedroom upper) in Buffalo in the next month. The house is owner-occupied on the lower unit, and upper is rented to a "family-friend" for the past "10 years." I had a chance to meet her and make a first impression during the inspection process. She seems friendly, and I certainly not only want to follow the law, but make this a reasonable process for her. My plan is to live in the upper unit and do cleaning and updating, while the lower unit needs very minimal work. Before anything, the house needs updated electrical, and I already had an electrician come out and quote me on the job. She pays $500 a month, and from my impression, would be willing to stay in the unit for 1 year. On the Rent Rider, she is month-to-month with lease expiring on Jan 31st 2021. Again, best case scenario in my mind is that she leaves when that lease is expired and I move right in to the upper unit.

Should I:

A) Make an agreement with her upon closing to keep her in the upper paying rent while I do minor updates on the lower and the electrical work, so she has ample time to find a new place to live (so contract month-to-month still?)

B) Draw up a contract giving her 2 months maximum to find a new place to live, do not charge rent for that time, with cash-for-keys?

C) Straight up cash for keys at an offer she cannot refuse? Over $500?

I have done some research on what a landlord can/cannot do in NYS: "He" must give 90 days notice for any tenant who has been renting for more than 2 years that he is raising rent by 5%, or not renewing lease.

Does that apply to me even though I am the "new" landlord?

Again, I am not trying to "gut" this lady, but I am unsure of any written/unwritten laws for this situation. Any help is greatly appreciated.

Nic

Steve K. · Answer

If I was in your place, I would never do Option B. Both A and C are good options. A is OK if you're getting close to market rent. C is good if rent being paid is too low. NYS is not the most friendly for LL to operate.

I don't think that 2 years applies to new property owner unless specifically noted. Moreover, you don't know if she is really living there for last 2 years.  Not many tenants know those rules.

Option C cash for keys is reasonable and the best option. Good Luck

Bjorn Ahlblad · Answer

@Nicholas Bossert Congrats on the duplex! The notice period is your responsibility. So if it is 90 days then that is what applies. NY is about as tenant friendly as it gets. So maintain the attitude you already have. Anything you agree on make sure it is within the law, clearly understood, and in writing.

Cash for keys is not governed by the 90 days, it is an agreement between you and the tenant. Do not give her any money until everything is out, you do a move out inspection with her, she hands you the keys and signs an agreement-one page-that spells out her parting ways with the property, and you hand her a check.

Make sure the at least seller is out prior to close. Winter time evictions in Buffalo will likely not happen! All the best.

Nicholas Bossert · Answer

Just to update this thread:

I received an addendum request for the purchase contract from the seller with stipulation that the buyer (me) conditions that the property be vacant upon closing. I happily signed. Thank you all again for the advice.

Matthew Irish-Jones · Answer

@Nicholas Bossert yeah of course.  My contact info is on my profile.  Feel free to reach out anytime.

Nicholas Bossert · Answer

Matthew, thank you for all of the information. I do appreciate the gravity of this all, and I am trying to make things work rather than toss in the towel. You bring up a lot of important points here. Importantly, my realtor reminded me that the seller initially agreed to have the tenant out by closing - I have to confirm this in contract. If things work out, I will give the seller money towards this process (cash-for-keys, I give the cash but do not need to deal with the tenant). All in all, I know my hands are "tied," but at least I was able to meet her briefly and make an impression.

I appreciate your wise-words, and I would be very interested in meeting you further - and hopefully I have something that is useful to you! Let me know if I can contact you. Thank you for your time!

- Nic

Matthew Irish-Jones · Answer

@Nicholas Bossert $500 is nowhere close to an offer she cannot refuse.  If she is way under market rent she is looking at a $400 rent increase, first month + security deposit.    She could very well laugh at your cash for keys offer.   We have a tenant in our portfolio where we have offered significantly more to get out, since they are not paying rent and no other landlord will approve them you would be SHOCKED at what they are turning down.

In this climate with an eviction moratorium you need to tread very carefully.  The moratorium is supposed to be up in January.  The thought that politicians are going to open up the flood gates for evictions days after Christmas in the middle of winter seems far fetched.

The real answer here, and this may be too late, is to see if the seller will get them out prior to closing.  On a month to month lease you could have written that into the contract in paragraph 20.  It may not have worked anyway but, at least you could have made the issue the sellers and not yours.  I would call your attorney and see if you can work this out, you may get them to come back and say they will do it for a fee, or an increase in sale price, or whatever...

The important point to understand here is with all of the options above you have to account for her refusal to take any option.  At that point you have inherited a family friend, under market value, and if she refused an increase, to leave, or to pay rent, you cannot evict.

If getting the seller on board does not work you should tread very carefully.  Go and tell her you would like to live in the upper and want to know how much time she needs to find a new place?  Whatever her answer is, you may have to accept.  The consequences of a bad relationship with a tenant are too severe at this point, you have no leverage to enforce any kind of contractual agreement.  It sucks, but its the reality.

Filipe Pereira · Answer

Call me crazy, but is there any reason you can't ask the seller to give her notice now @Nicholas Bossert? If he gives notice now, that means she would be out within 45 days +/- from when you close. Is that acceptable to you? I think that's the cleanest way to do it, without you having to make any enemies, unless you don't want to put the seller in that predicament, which I can understand.

If you don't want to go that route, then cash for keys may be the best option. Structure it so that it incentivizes her to leave sooner than later. I.e. $700 if you are gone in 2 weeks, 500 if it's 1 month, $200 if it's 6 weeks.... etc.

Nicholas Bossert · Answer

Bjorn, Thank you! And thank you for the help/advice. I realize this 90-day stipulation is my responsibility, and thank you for confirming that for me.

Thank you for also clarifying the Case-for-Keys. I now plan on drawing up a contract (with more research of course) that offers cash for keys contingent on her items being moved-out, sufficient move-out inspection, and that she is no longer a tenant at the property.

She will obviously need to find another residence, so my cash offer is reasonable at $750? That number seems to be the "average" of a 1 room unit in the area. I do not know what a typical cash-for-keys offer lands at. I just get nervous that she will reject the cash-for-keys offer.

Thank you again for the advice!

Nicholas Bossert · Answer

Steve, thank you for your advice. This is helpful - I believe the 90-month stipulation is my responsibility, so I agree that Option C is the best option for me. I am trying to not let the NYS LL laws discourage me! Thanks again.

Nicholas Bossert · Answer

In an ideal world, I know I should have made this contingent on the house being transferred to me vacant, but I believe I am "in too deep" for that option.

I also realize the buyer-beware in purchasing a property with existing tenants, especially those of a family friend. There was likely no screening process, and they may have granted her leniencies (late or skipped rent) that she may be used to.

Closing on property with an Existing Tenant?

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