Buying a house can be a daunting prospect. There is always uncertainty on what to do through the process. This is made even more so when the house has existing tenants. On top of the usual questions regarding real estate ownership, this adds the additional questions of what you can and can’t do regarding these tenants.
It is important to understand when buying a property that has an existing tenant that the sale does not change the terms of the lease that tenant is under. A lease it considered “attached” to the land, not the owner. Therefore, when purchasing a house that has a tenant you are also getting the tenant and is subject to the rights of that tenant. This means just as the terms of the lease apply to the tenant, these terms also apply to the new owner.
If you are interested in a house that has existing tenants, but do not want to have the tenants in the house, one option is to make your purchase offer contingent on the house being empty. This will prevent you from having to buy the house if the tenants refuse to terminate the lease and puts the burden of getting the tenant to agree and any corresponding negotiation on the current owner.
If the ability to avoid purchase is not desired, one can purchase the house and then negotiate with the existing tenant to ‘buy out’ the remainder of their lease. The pros and cons must be considered careful before choosing this. While it does provide for a faster purchase, the tenant is also not under any obligation to agree to terminate the lease. This could result in the purchase of a house and being stuck with the tenant keeping possession of the house.
Whether you purchase the house with the intent to have tenants or are stuck with them due to a refusal to terminate the lease, the new owner is now a landlord. As a result, the new owner has certain oblations no matter if they wanted to be a landlord or not. This includes keeping all common areas safe and clean, making sure the structure is safe and intact, ensuring the electrical, plumbing, heating, and air conditioning all work properly, and extermination of rodents and insect infestations.
At the end of a tease, or if a month to month tenancy on 30 day notice at the start of the next cycle or 60 days if the tenant has been there for a year or longer, the new owner can terminate or change the lease or rental amount (30 days for up to 10% increase, 60 days for greater than 10% increase).
If looking to purchase a house with the intent of renting it out, buying a house that already has tenants can be beneficial as there will be immediate rental income and nothing to do in preparation for seeking tenants. It is important to examine the lease or rental agreement in this case so an informed decision can be made knowing the legal oblations that will be coming with the house and tenant. Also, the condition of the house is even more important. As the new owner will be responsible for the condition and any already exciting problems not addressed before closing will be on the new owner to remedy.
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