Inheriting long term Tenants?

[Matt Sora]

When buying a property if you are inheriting tenants what is a good way to go about that? What if they are not good tenants and end up causing a lot of problems such as when lease ends they wont move out? Is there any way to combat this?

[Nathan Gesner]

Quote from @Matt Sora:

When buying a property if you are inheriting tenants what is a good way to go about that? What if they are not good tenants and end up causing a lot of problems such as when lease ends they wont move out? Is there any way to combat this?

This question is asked a lot. There's no way to really know until you own the property, but you can be proactive in reducing the risk of problems.

During the purchase process, ask for an estoppel. I'll give you my estoppel advice at the end of this message.

You should also collect as much historical information about the renters as possible. Your inspection phase should include a review of the lease, their payment history, and any other documents pertaining to their lease. Try to learn as much as you can about the renters and their behavior before you close.

Once the purchase is complete, you need to immediately establish yourself as the new Landord. Visit the property and hand them a letter that introduces you as the new Landlord. It should include instructions for making payments, how to contact you for ordinary business, and perhaps a second way to contact you for emergencies. For example, you may want to give them your cell phone but tell them it's only for true emergencies that require immediate attention; all other communication should be via email so you have written/recorded conversations. I also recommend you ask them for current/complete contact information. Finally, schedule an inspection within the first week of ownership so you can answer questions about how you will manage the property, talk to the tenant about any maintenance concerns, and document the condition of the property. 

Documenting the property is necessary because you just bought it "as is" from the previous owner. If you bought it and a window is cracked, you've accepted that cracked window and may not have a leg to stand on for charging the tenant. Document the condition the day you close, and then hold the tenant accountable for any cleaning/repairs from that point forward.

You have to honor their existing lease, and the terms therein. If they have six months left, you're stuck with them for six months unless there are some lease violations that enable you to remove them. If they are month-to-month, then you can give them notice according to your state law and remove them.

ESTOPPEL

Your offer to purchase should include a requirement that the Seller provide all documentation and agree to sign an estoppel certificate (also called estoppel form or agreement). The estoppel is a form filled out by the tenant, then confirmed by the Landlord, then accepted by the Buyer. It's supposed to ensure there are no surprises after closing. For example, I often see Buyers purchase property thinking there is a $1,000 deposit but then the tenant claims it was actually $2,000 because they paid the last month's rent. 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: Sample Estoppel

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.