I am buying an investment property with tenants, do I have to assume the tenants? What are my options?
Assume the tenants
Ask for vacant possession on closing
Assume the tenants, then try to negotiate with the tenant after closing (e.g. cash for key)
Assume the Tenants
If the rents are not too far off market rents, it’s not a bad option to assume the tenants. However, there are some things that you need to make sure before assuming the tenants.
You must review the existing leases
Obtain a Tenant Acknowledgement which tells you about the current rent, tenancy, rent deposit, tenant information, side agreement, lease information, etc.
The Tenant Acknowledgement could be signed by the seller and/or the tenant. If you can get the tenants to sign, that would be ideal.
Optionally, you can also ask all the tenants to be on a new lease. A new lease is not required, but it’s a good idea if the tenants agree so it’s a fresh start.
Seller to provide instructions to tenants on how to pay the rent to new landlord and landlord contacts
Ask for Vacant Possession
Have the seller vacant the property for you before closing
Make sure that you are not going to have issue with your mortgage before asking for this. Some mortgage requires the property to be fully leased out especially the commercial mortgage for larger multi-families.
Make sure that you receive a copy of the signed N11 form from the seller when they terminate the lease with the tenants. You don’t want tenants to come back to say they didn’t terminate the lease.
Cash for Key
This is basically for the landlord to pay the tenants and ask them to move. This is a popular strategies among landlord if the market rent is very low. When you do a cash for key, make sure you have N11 form signed properly, with a proper consent agreement, paper trail, deposit proof. When the tenants moving out, make sure you are present and change the locks afterwards. If you are not familiar with cash for key, you might want to hire a paralegal to help you do it.
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