What to Look for When Buying or Selling Tenant Occupied Real Estate
If you are selling real estate and your property is currently occupied by a tenant, you should look for a buyer that is happy with a tenant occupied property and that is willing to buy that property subject to the tenant’s rights.
It’s important to note that the buyer inherits all of the seller’s obligations and duties under the terms of any lease agreement in place at the time of sale, whether the buyer likes the terms or not. For instance, let’s say the seller entered into a twelve-month lease agreement with a tenant in January. The seller then decides to sell the property in February and the buyer purchases the property in March. The buyer is then obligated to honor the terms of the lease through the end of the year.
Of course, the buyer can always attempt to renegotiate the terms of the lease agreement with the tenant after purchasing the property. Additionally, the buyer can enter into an agreement with the tenant prior to buying the property, whereby the tenant will either agree to leave the property post sale or agree to pay more money. But, absent such an arrangement, the buyer must be agreeable to taking the property subject to the tenant’s rights.
In connection with this, there is a very important document that is often missed, called a Tenant Estoppel Letter. That is just a fancy way of saying that it is a formal document that lays out what the tenant pays, what the landlord is holding in a security deposit, whether or not there are any claims pending against the landlord, or any other issues that the buyer wants to be aware of. It also notifies the tenant that once a transaction closes, the previous owner is no longer the landlord and that a new landlord has been appointed.
As a buyer of tenant occupied real estate you want to make sure you inherit and receive all of the security deposits and that the tenant has adequate insurance in place to protect the landlord in the event of an incident of some kind.
These are a few important points to consider when buying or selling tenant occupied real estate so as to ensure you have a smooth real estate transaction and know what you are getting into.
If you have any questions regarding tenant occupied real estate or any other real estate issues, feel free to give us a call, we are here to help.