Tenant issue: need advice

[23994]

Hi,

We just bought a duplex multi-family investment property, when we signed the final agreement, both units are rented out and we agree to accept all of them...

our closing date is 66 days long, right after the deal, we were informed that the downstair's tenant is going to move out prior to our closing and the seller was offering the help for new tenant recruit...

after a week, when my agent contact the seller's agent for showing and ads, we were told they can not let us to do it as their lawyer suggested the seller not to do so...the lawyer claimed that they should avoid any possession like activity prior to closing and this falls into that category...

My questions here are as follows:

1. What should we do now as we do want to have the new tenant to be there to avoid the empty and loss of rent?
2. what kind of lessons we can learn to avoid in this situation to put into agreement in advance?

looking forward for your advice ASAP!

Thanks,

Sue

 

[Matt Crowley]

Hi Sue,

When it comes to small real estate deals the difficulty is that it is a huge amount of money for a private individual but actually there isn't enough on the table to justify large legal fees. It probably is a waste of money to spend $2,000 in legal fees.

Additionally, I will say that the vendor's lawyer is giving the right advice to his client. If I were a vendor selling this, there is 0% chance I would give you access. I would do exactly as he is doing to avoid any infinitesimal chance of someone coming back saying I put in a bad tenant on purpose. Not worth the hassle or the risk. Especially with a signed offer (with all conditions released?) Actually if you don't have all conditions released just cancel the offer and send a new offer with a lower price. That wasn't clear in your post above to me at least.

That being said, if you have released conditions, look to what the offer to purchase says in reference to the leases. What sort of language is around their acceptance? How long was left on the leases? If it were my deal and I had leases that had several months of income remaining, I would state that there was an expectation of income from the suite. Part of the valuation you put on the suite was the fact that it had stable tenants with good leases lasting x amount of time. I would then look to the lease as far as any abandonment fees and ask for that abandonment fee plus at least a month's rent reduction in purchase price. Cash backs are a thing of the past now (from what I have heard), so it is actually going to cost you a lot more in cash to carry this property than anticipated. So there is a material change in its condition. It might be a bit elaborate but you could stretch that it makes the insurance more difficult to negotiate a favorable rate as now they are writing a policy for a vacant unit which is a bit unnerving.

Hi,
1. What should we do now as we do want to have the new tenant to be there to avoid the empty and loss of rent?

You are going to lose rent. That is the reality. You basically have to try and negotiate some sort of price reduction as compensation.

2. what kind of lessons we can learn to avoid in this situation to put into agreement in advance?

This is just part of the "normalization" of rents and units when you buy them. Tenants leave. You could write into the offer that at closing the unit must be rented to x and y lease and that abandonment of either lease is due a $x,xxx reduction in purchase price. In my experience, it just isn't worth the ugliness of trying to get a seller to fill a unit while dealing with an extended closing.

 

[Thomas Beyer]

Hi Sue,

You could write into the offer that at closing the unit must be rented to x and y lease and that abandonment of either lease is due a $x,xxx reduction in purchase price..

Good advice here. Assuming your contract is still conditional, ask for a price reduction for your increased effort now to find a new tenant AND having no lease in place.

You are not only buying a duplex. You are buying a turn key business, namely a fully leased duplex. Big big difference.

Of course, the seller may decide not to accept your amendment. That is a function of market. You can be very aggressive, by asking for a $20,000 price reduction or you can be very modest and ask for $2000 only.

 

[Alvaro Sanchez]

When buying property, I always include a clause in the OFFER that allow me to visit property (x number of times) and to allow us to show property to potential clients (if required) PRIOR to closing. This is in addition to property inspection and appraisal. I have never seen someone remove this clause.

Try to work with the seller (and his lawyer) to make sure that you have a say on the next possible tenant. If not then just ask them no to get someone there and take it vacant. Yet, start marketing the unit and target for your closing date.

 

[23994]

thanks all for your advice...to provide more on the story and what is going on now:

The deal is firmed and conditions are all released, then we were information the tenant is going to move out just by the date we are going to have closing, e.g. the deal was firmed on Dec. 24, 2015, we got the notice Jan. 5, 2016 and the tenant is going to move out by Feb. 29, our closing date is March 1 2016...

After discussed with the seller, he agrees to let us start advertising, e,g, a For lease sign in front of the house, provide the pictures for ads online, and Only 1 time showing are allowed for potential tenants...we have agreed it with the concern the only one time showing may not be enough for us to find the right tenant...

Any more advise/suggestions?

Thanks,

sue

 

[Matt Crowley]

At this point your options are pretty limited. Keep in mind that if the suite is not in very good condition come turn around time then you are not going to start off the relationship very well with the new tenant. You don't have any control over how clean the place is or what kind of damages are in the suite. The previous owner will collect any deductions for damage as well and probably will just pocket that money rather than get his lawyer to normalize the damage adjustment...also be conscious here about whether the DD was returned to the previous tenant. If the official move-out and keys return was not completed on that date you may find yourself in a weird situation where the tenant is overholding and you owe the DD.

Your timeline for immediate turnaround is probably not realistic unless you want to post your place $150 under market rent...which might be the only strategy you have here. Otherwise you will have to live with some vacancy. You need to get a lot of people interested to view the suite at the same time. Keep in mind as well that tenants may be very wary about giving you a deposit on a suite that you don't own. I wouldn't give you a deposit if I were your tenant. I am not even sure if it is legal to collect one... although unless you run into a professional tenant I don't think anyone is going to make a fuss about it.

If you want some kind of compensation, you will need to try and find a way to adjust purchase price or claim for early lease abandonment as a real cost you have to incur. The access you have, while offered in good faith, is not really worth a whole lot. Turnarounds are a really important part of the tenant relationship. There is no way I would put a tenant in a dirty or damaged suite - ever.

 

[23994]

thanks Sweetzone, really good tips, I have never thought of these situation...

how to avoid into the worst situation ---

t this point your options are pretty limited. Keep in mind that if the suite is not in very good condition come turn around time then you are not going to start off the relationship very well with the new tenant. You don't have any control over how clean the place is or what kind of damages are in the suite. The previous owner will collect any deductions for damage as well and probably will just pocket that money rather than get his lawyer to normalize the damage adjustment...also be conscious here about whether the DD was returned to the previous tenant. If the official move-out and keys return was not completed on that date you may find yourself in a weird situation where the tenant is overholding and you owe the DD.

Please advise

 

[Matt Crowley]

^ This is something to advise your lawyer of. You may want to instruct your lawyer to get some form of proof that the obligation (to pay the DD) was released and paid. As far as damage to the suite, the home has to be in materially the same condition as when you had the accepted offer. It is one of the tricky areas of real estate where you usually won't get to see the home again until possession date and it usually isn't worth the legal fees to go after the other party if they destroyed furniture that was included in the offer, for example. In your case, just take note on the instance you get access in the property to show potential tenants.

 

[23994]

Thanks SweetZone...in fact, I was told there is No DD(damage Deposit) in Ontario and this property is located in Ontario...

we are going to have last visit to the property prior to the closing and this is extra than the showing, so we could utilize it to take notes on the instance, but with the current tenant still there, take pictures and videos may not appropriate though...

 

[Tina Myrvang]

Here is the link to the Tenancy Board for Ontario.
http://www.sjto.gov.on.ca/ltb/

 

[Alex Pang]

I agree with the advice on this thread. You're better off stomaching the vacancy and filling it on your own terms the first month you take possession. Speaking from experience, the unit shows better when it's vacant and not with existing tenants' furniture. Asking existing tenants to tidy up for showings won't guarantee that will they do it. With all investment properties, you should have at least 3 months expenses as a contingency fund, to weather issues such as this one. Now it's just a matter of getting a price reduction from the seller for the tenant leaving early.