Get out! I'm renovating. When to break the news to tenants?

Question

I purchased an occupied duplex earlier this year in Mystic, Connecticut. It's a Greek Revival style building originally constructed in 1845. The location is very good (although it's in a historic district).

The house is habitable, but is in need of major updating and structural repair to bring it back to it's former glory.

The property will generate close to 3 times the rental income once it is renovated so it will be well worth the investment.

I would like to begin the work in September, 2015. The project will require the whole property to be vacant and will last 3 to 4 months.

Tenants in unit 1 are on a month-to-month lease. Tenants in unit 2 are on a lease that ends in April.

Ideally, I want to maintain occupancy in both units until September, but also want to mitigate the risk of having to formally evict anyone that refuses to move which could delay the start date of the renovation.

When should I inform the current tenants of my plan? What strategy would you use to ensure they stay until September, but move out on time?

Thanks in advance for your advice!

Dawn Anastasi · Answer

Do the tenants have the resources to rent after the renovation (as you said the rent would be higher)?  If so let them know that you're going to do a major renovation on the property and the rents will be higher due to this fact.  I think people would be less likely to complain about having to move knowing that there's a major renovation that's going to be happening.  If they are good tenants, maybe they know of somewhere to stay for a few months until the dust settles and they would want to move back in (usually not likely but you never know).

Bill Wallace · Answer

The safest way is to tell Tenant 2 you'd like to renew them on a month to month lease starting May 1 at their current rent.

Then, assuming you have a 30 day cancellation, I would tell both tenants on July 5th that you are ending their leases on August 31st. That will give them plenty of time to find a new home but ties them into staying through August.

Kevin Scanlon · Answer

@Bill Wallace I like your plan. Thanks for the input!

@Dawn Anastasi I suspect they would not be interested at the higher price point, but it's worth throwing out there. Thanks!

Bill Wallace · Answer

Well I'd still go more with my plan with something like the following -

- Call them personally to tell them in early July. Tell them that they need to vacate on August 31 but that you'll give them 100% of their deposit back (plus interest if mandated by law) on the spot upon move out assuming no damage. If they don't have to clean tell them that too as that will seem like a bonus. On top of that you'll give them $200 for moving costs at the same time and serve as good reference for any calls from landlords. Do reinforce that they will still pay August rent.

Kevin Scanlon · Answer

@Bill Wallace @Richard C.

Great points on both sides. 55 days notice does seem pretty reasonable. I do agree that being fair and treating people with respect always works out better than trying to use strong-arm tactics. They could still potentially fail to pay rent for the month of August, in which case I could begin the initial phase of an eviction. I am currently only holding the equivalent of 1 month rent as security deposit.

What about a possible deal sweetener? Prompt security deposit refund would definitely be a good one, but would anyone consider an additional incentive? Say a couple hundred bucks each to cover the moving costs?

One tenant does have a child in school, which I had not considered. However, the timing could work well since the school year typically starts in early September and they could likely find another place within the same district.

The condition of the property and the level of renovation I am planning is such that I am not too worried about any damage being done. I would still like to avoid instilling any feelings of violent rage.

Richard C. · Answer

But Bill, what you actually suggested was giving them that notice just AFTER the point when they could leave without penalty.

Most tenants aren't stupid, they're just people.  I was a tenant once; almost all of us were.

If anything, if the OP is most concerned about tenants not leaving, and delaying his rehab, he should probably just tell everyone they are out as of July 31, and live without the last month of rent.  That way, if they don't leave he have time to do something.

I do agree with you about the security deposit.  Kevin, if you are doing a whole house rehab anyway, there is really no need to withhold SD money right?  (And in fact, wthholding for work not done is likely illegal) and so there is no need to hold the money for 30 days or whatever; you could agree to give them the money when you see their truck loaded and they give you the keys.

Bill Wallace · Answer

Richard has a valid point but I guess it depends on whether you consider giving a tenant 55+ days notice to vacate (as I suggested) as trapping a tenant.

My goal was to protect your income stream while at the same time trying to be as considerate as possible to the tenant.

Heck, anyone who has been a landlord for a while has had to tell a tenant that you weren't going to renew their lease. I had to do so this past fall so I could put my wayward son in a property vs. having him live on the street. As I told my tenant, I was very sorry to do so, I'll be the best reference ever for any future landlord that calls me and I'll be very quick to give you your security deposit back. There are certainly ways you can try to soften the blow of having to ask them to leave.

Richard C. · Answer

Depends on how well you would want to be treated yourself.  For me, I would certainly appreciate as much notice as possible.  You don't mention if the tenants have kids in school, etc., but that matters.

If one followed Bill's advice, essentially using his superior access to relevant information to jigger the dates in such a way as to "trap" a tenant until the last second...well, maybe you don't care because you are rehabbing anyway, but remember that while you have better access to relevant information, the tenants have better access to the property in many ways.  "Nice place you have here, shame if anything was to happen to it."

At the very least, if you did that to me I would move whenever it was convenient for me to move and dare you to try to enforce the lease.

The Golden Rule is very often good business.

Get out! I'm renovating. When to break the news to tenants?

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