Rent to Own - RTO question

housingrental

Frequent Forum Member
Registered
a question for RTO experts - what happens when tenants are responsible
for repairs and do not undertake them? Wouldn't many owners be left with
potentially huge liabillity?



Ie



RTO tenant does not repair property as needed



RTO tenant does not purchase property



RTO leaves to USA etc..



Owner has possession of property that might have had water damage not
dealt with for X years and $80K in repairs needed vs $2K i originally
dealt with and owner has no recourse as tenant AWOL = no litigation
possible?
 

Cargren

Inspired Forum Member
REIN Member
Very good question and always a possibility!



Also a good reason to require a 5% Option Deposit from your LTO (RTO) tenant up front. That will certainly leave you in a better situation than if your conventional renter walks away from a one month security deposit and $80,000 worth of damage! :)
 

Thomas Beyer

Senior Forum Member
REIN Member
You are the owner. You are responsible until it sells. The tenant-buyer (TB) may have obligations depending on your contract. Assuming it is properly worded you have recourse against TB ... but if you are able to collect is another question. That's why the initial option deposit, now being forfeited, should be sufficiently high.
 

bizaro86

Frequent Forum Member
Registered
[quote user=Cargren]Also a good reason to require a 5% Option Deposit from your LTO (RTO) tenant up front. That will certainly leave you in a better situation than if your conventional renter walks away from a one month security deposit and $80,000 worth of damage! :)



Since people react according to their incentives, a conventional renter is much more likely to call you at the first sign of trouble. "Oh this is leaking, better call the landlord and he/she can fix it." Then you can deal with it when it's a $1000 fix not a $80,000 fix.



A rent to own tennant might see the water, think "I better not call anyone so I don't have to pay for that" let it get terrible, and decide to skip town once it gets really bad. Then a small problem becomes a big problem. Even a $40,000 deposit would be cold comfort when faced with a $80,000 repair bill...



Regards,



Michael
 

GaryMcGowan

Inspired Forum Member
Registered
Not sure how to answer that question of the water bill. However just like Buy and Hold properties inspections are still required by property owners. Smoke alarms checked and everything else that goes along with that. Yes of course things can always happen I'm sure the same answer would apply to one of your student rentals where there was 80k in water damage.



RTO TB does not buy the property;

We have had two cases where we extended the RTO agreement and both sides are happy with the current situation. We have also had two TB move out and forfeit their deposit money.



The other 10 RTO properties that we own are moving along as planned.



Major structural damage is rare in this case as the TB is focused on taking care of the property and working towards improving the property. Could it happen sure it could. Anything can happen just as it would with any investment property.



Contracts are signed at the beginning and it is our job to ensure the TB understands what the contract says. This could(should) be done via Independent Legal Advice.
 

Cargren

Inspired Forum Member
REIN Member
Anything is possible, and as you mentioned, people react differently in any given situation. While it is no guarantee, I think that having $40,000 equity in a property is incentive to look after the property. Someone who has that much invested tends to think like a home owner rather than a renter. Just my opinion...
 

bergerj

New Forum Member
Registered
Have been talking with a Lawyer about this topic in Ontario and I understand that putting a clause in the RTO contract that says Tenant is responsible for maintenance is NOT something that would hold up in court.



Seems like a gap that everyone is just sweeping under the carpet and hoping the tenant doesn't know any better or doesn't check with their lawyer?



Any suggestions on how to deal with this, or just add the clause and hope it works out ;(
 

invst4profit

New Forum Member
Registered
Regrettably in Ontario whether investors are dealing with tenants or RTOs it is not until the investor encounters a problem that they discover they are not protected. The laws are generally drafted to protect the innocent,that being the tenants, and as such additional language in a rental or RTO lease does not over ride the rights of the tenant.



Contract language does not take precedent over Provincial law. As such investors in Ontario should consult a Ontario specific lawyer well versed in residential income property and RTO law.
 

RedlineBrett

Senior Forum Member
REIN Member
The owner owns the property and also owns these problems. By renting they agree to accept the risk associated with tenancy in exchange for the benefit of monthly income.



Remember that the only thing you have holding a tenant / buyer into any RTO deal is the size of their deposit. If you only take $3,000 as a deposit and a repair bill comes in that is $3001 and you try and make the tenant pay for it the tenant now has an economic incentive not to follow through on your deal.
 
L

lanedry77

Guest
Guest
To me, this is clearly tenant damage and would fall under the coverage of a comprehensive insurance policy.



Of course, you'll have to pay the deductible, and it's critical that the property was inspected along the tenancy to mitigate issues like this, but at the end of the day it's a rental tenant that allowed damage to the property.



Call insurance, pay the $1,000 deductable, and let them cover the repair costs - that's exactly why we have insurance.





Thanks,



David.
 

bergerj

New Forum Member
Registered
I agree in this case and in other cases of neglect or vandalism insurance or the tenant should be responsible, however, in everything I have read including a number of RTO contracts it seem people are putting in a clause that states the tenant is responsible for all maintenance which doesn't really fly if the tenant knows the law. In fact in talking with my lawyer today, he suggested a 'smart' tenant could go after the cost of all of the 'maintenance' they have done over the term and they would win!



It seems the best approach is to build in an acceptable cost into the deal to cover maintenance and then include the clause and hope you have a happy tenant that can deal with most items on their own. If, however, the furnace goes or an appliance that you have provided, I think you are on the hook to fix/replace unless the tenant doesn't have a good Lawyer.



Maybe I should start a new thread but it would be nice to get feedback on what others are finding in this area?

- is maintenance always included as a tenant item in your contracts?

- is there a dollar amount the tenant covers and anything above that you are on the hook?

- any experience in real life how this works out (i.e., most people just comply with maintenance)?



Regards,

Joel
 
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