William's Places: The Landlord Is Selling The House. What Happens to the Tenants?

The Landlord Is Selling The House. What Happens to the Tenants?

 The Landlord Is Selling the House. What Happens to the Tenants?

transferring keys

When a person owns a multi-family house, and decides to put it on the market for sale, there are three people who are affected by the potential sale of the property: the seller, the buyer, and the tenants.

A question that I have been asked many times by both potential buyers and tenants alike is: What happens to the tenants? Do they(we)have to stay? Do they(we) have to move?

There are many different answers to these two questions. What the answer is for every specific buyer, and for every specific tenant, is dependent on a number of factors. Let's start out by addressing the most important factor: the lease. In Connecticut, leases convey with the property. In other words, when the closing has taken place and the deed and title have been transferred to the purchaser, the new owner is now responsible for upholding the terms of the lease applicable to the owner.

That is not the end of the story.The needs/objectives of the buyer in purchasing the property are a substantial factor in determining what happens to the tenants, as is the tenant's rental history with the previous owner. Many times, when a purchaser of multi-family homes is looking for already occupied properties to buy, they are looking for investment income. The previous owner should provide a rent roll to the potential buyer, so that the potential buyer knows how much income is generated by the property, as well as what the expenses of the property are (taxes, insurance, etc.). Such a buyer may opt to utilize a company that provides background reports on current and potential tenants, or question the current owner's motivations for selling. Any answers that reveal problematic tenant(s) may be grounds for the new owner to submit a notice to quit possession of a unit. Also, if the new owner is looking to live in the property, and have additional income coming in to assist with paying the mortgage and taxes, depending on the number of units in the property being purchased and their level of occupancy, one or more units may be given a notice to quit possession. If none of the above applies, and the current tenants are in good standing with the previous owner, the new owner may decide to keep and renew the leases, once the renewal dates have arrived.

Because of the uncertainty that the sale of a multi-family home generates among tenants, many sellers advise their tenants of their plans to sell and to start looking for another place. That is practical, when both the seller(s) and the tenants have been told what the potential new owner's plans are. It is also wise when neither the current owner or the tenants know what is going to happen, because it at least gives the tenant some peace of mind knowing that whatever happens, they will have a place to live.

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Courtesy of William James Walton, Sr. , Realtor, WEICHERT, REALTORS® - Briotti Group

Serving northern New Haven and southeastern Litchfield Counties (Waterbury, Wolcott, Prospect, Naugatuck, Middlebury, Southbury, Watertown, Thomaston and Plymouth)

 

Call William James Walton, Sr. Real Estate Agent with WEICHERT, REALTORS® - Briotti Group (203) 558-7463 for help with your real estate needs -buying or selling -  in Waterbury, Watertown, Wolcott, Middlebury, Southbury, Prospect, Naugatuck, Plymouth and Thomaston

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Comment balloon 22 commentsWilliam James Walton Sr. • March 25 2013 09:00PM

Comments

William - This is definitely a concern for tenants who don't like the uncertainty.
Posted by Christine Donovan, Broker/Attorney 714-319-9751 DRE01267479 - Costa M (Donovan Blatt Realty) about 6 years ago

Hey William,

Excellent post and one that is very relevant today in our metro Atlanta market where owners are signing up tenants and allowing the homes to go into foreclosure.  Lots to think about.  Best of GREAT success to you this year!

Posted by Jordon Wheeler, J W Group Real Estate Sales and Service (The Jordon Wheeler Group) about 6 years ago
William, I think the answer depends on the term the seller and the tenant agreed upon.
Posted by Wika Hutchinson, Broker, CRIS, SFR, CDPE about 6 years ago

In certain way it is similar here. The only time the paying tenant with a valid lease can be kicked out is when the buyers are purchasing the property as their primary residence, and then they have to give 90-day notice.

Important topic

Posted by Jon Zolsky, Daytona Beach, FL, Buy Daytona condos for heavenly good prices (Daytona Condo Realty, 386-405-4408) about 6 years ago

Multi-unit rental properties are easier to show and sell because the tenants realize that their RENT is often the basis of the VALUE to the landlord/SELLER

Posted by Wallace S. Gibson, CPM, LandlordWhisperer (Gibson Management Group, Ltd.) about 6 years ago

All depends on the motivation of the buyer and the seller.  If the buyer is seeking investment property, tenants will usually stay.  When the lease survives the sale, all is well.  It's all in the lease.

Posted by Lenn Harley, Real Estate Broker - Virginia & Maryland (Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate) about 6 years ago

William- I have been the listing agent on a few rented homes. Some homes appear obvious as to what will happen. Others are not so sure.. Best to be open and discuss with the tenants..

Posted by Scott Fogleman, New Home Team (New Home Team 804-573-9592) about 6 years ago

William,

I have done several sales to investors where the tenant stays right in place. The only change is who the check is made out to after settlement. It's a different story when a buyer purchases the property who actually wants to live there.

Rich

Posted by Richard Iarossi, Crofton MD Real Estate, Annapolis MD Real Estate (Coldwell Banker Residential Brokerage) about 6 years ago

Existing leases can also affect the market value of a property.  For example, if the subject property has long term below market rents, this would likely negatively impact the subject's market value.  A realtor should be aware of the lease terms and market prices of similar rental units before deciding on a list price

Posted by Jesse Skolkin (Independent New York State Certified Real Estate Appraiser) about 6 years ago

Make sure all the tenants deposits convey at the closing. Some unscurpulous landlords do not escrow monies from tenants and in some cases do all they can to not return security deposits...make sure the seller gives you all the tenant monies...and make sure the former landlord has not been breaking any laws regarding the handling of deposits.

Posted by Edward Gilmartin (CRE) about 6 years ago

That was a nice post and I feel that the future of the tenants depends on the purchaser and the tenants and what they have agreed upon and weather they have agreed upon the lease statements.

Posted by John Dzialo (Law Offices of John Thomas Dzialo) about 6 years ago

Your last paragraph sums it up nicely. Informed tenants will help all parties in the transaction.

Posted by Gary L. Waters Broker Associate, Bucci Realty, Fifteen Years Experience in Brevard County (Bucci Realty, Inc.) about 6 years ago

In multi-units the purchaser is rarely a user, so the tennants don't fear they'll be asked to move. Getting into all of the units on the same day can be tricky !

Posted by Michael J. Perry, Lancaster, PA Relo Specialist (KW Elite ) about 6 years ago

Well, this was an unexpected surprise...

Christine: You're not joking. I had one seller refuse to put up a for sale sign on their property because they were concerned about how it would scare the tenants.

Jordan: Thanks. It is a relevant topic in every market where multi-family houses exist.

Wika: That may be true outside of CT. I do know that here, I have not seen a lease that states if the owner sells the property, then the tenants must vacate. As I stated in the post, here in CT, the lease(s) convey with the property.

Jon: Absolutely. If the new owner wants to occupy, time must be given to the tenant to find a suitable place. Sometimes, the new owner even offers to help with moving expenses or relocation to another property that they currently own.

Wallace: That is a toss-up. While it is true that the faithfully paying tenant is an asset to the seller and potential buyer, the tenant is under no obligation to take that into consideration in deciding whether to stay and be at the whim of the new owner, or to seek a new residence.

Lenn: Yep. That's why it pays for tenants to always pay their rent and meet all of their other obligations under that lease.

Posted by William James Walton Sr., Greater Waterbury Real Estate (WEICHERT, REALTORS® - Briotti Group) about 6 years ago

Month-to-month tenants have the most to fear about their rents being raised after a sale. I've seen some properties where the landlord attracted tenants at below market rents and you know that won't stay the same.

Posted by Hella Mitschke Rothwell, Hawaii & California Real Estate Broker ((831) 626-4000) about 6 years ago

William, it is important to know the the law governing landlords and tenants rights for a particular jurisdiction. Good information!

Posted by Michael Setunsky, Your Commercial Real Estate Link to Northern VA about 6 years ago

Great post on this topic. Knowing the lease is important for all parties for sure.

Posted by Paula McDonald, Granbury, TX 936-203-0279 (Magnolia Realty ~ Granbury) about 6 years ago

William hello and I hope you are well and prospering...Good subject that is directly related to the success of the sale of income property. A seller who lets the tenants in on the selling process may be taking unnecessary risks. No matter what happens afterwards, the tenants have rights. But before hand, it could cause some problems....Discretion might pay off here for all concerned

Posted by Richie Alan Naggar, agent & author (people first...then business Ran Right Realty ) about 6 years ago

Jesse brings up a good point.  It's difficult to measure sometimes.  I just did an income opinion of value yesterda, and the tenant told me a story of the last house they had where they ended up getting screwed during a sale .... At least, however, the broker did a good job re-situating them (in a better place for less rent) ... it's not a common story though.

Posted by Rick Phillips, I care about you and your transaction. (Frankly Realty - Old Town) about 6 years ago

Open lines of communication are always important.  Great post!

Posted by Julie Brown, Broker-Associate, Mt. Pleasant, Iowa (Steffes Group, Inc.) about 6 years ago

Purchasing a tenant occupied property is not to be taken lightly and for sure the buyer should not assume that the tenant will or will not stay.  Nor should they assume anything that can't be proven on paper. No one wants to inherit anyone else's problems.  Invesigate, investigate, investigate.

Posted by Charita Cadenhead, Serving Jefferson and Shelby Counties (Alabama) (Keller Williams Realty) about 6 years ago

I haven't had this particular issue, but I have had the issue of single family homes being sold while there is a tenant living there. We always go back to the terms of the lease and only list and sell in the time period of the lease coming up for renewal. That way we can be honest with both the tenant and the owner about how to proceed and we can do the legal and moral thing.

Posted by Randy Bocook, Selling Coastal Georgia (Keller Williams Coastal Area Partners) about 6 years ago

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