How to Handle Existing Leases after Change of Property Ownership

  • theRRD
  • Posted on June 23, 2015
  • Posted in Tenant Screening
  • Comments Off on How to Handle Existing Leases after Change of Property Ownership

Let’s imagine that you scoped out the perfect property investment.  Maybe it’s a property that will increase in value after refurbishment.  Or you just know that the neighborhood is in high demand because of the local amenities and you believe this demand is going to rise.  In most cases, the new landlord has some ideas on what they want to do differently with the property in order for it to increase its value.  Something to keep in mind when making this purchase decision is the tenants that already occupy the property.  This may delay some of your plans for the property.

The New Landlord Must Honor the Current Lease

Typically when a property gets a change of ownership everything is taken as is.  That means that the new landlord must honor the terms of the lease for those tenants that are currently residing in the property.  The landlord will not be able to raise rents, make major changes to the interior, or make other changes that conflict with the present lease.  The new landlord should be well read on the old lease.  Is the tenant permitted by the lease to a 2’ by 3’ garden space outside?  Then that re-landscaping project intended to increase property value will need to wait.

What can the Landlord Change?

Any exterior changes that the landlord would like to make that does not conflict with the lease can be made on the property.  The landlord will not be able to make upgrades to the interior unless you are given permission by the tenant to do so.  How utilities are handled is going to depend on the lease.  As a general guide, if the tenant is paying their utilities, the landlord should let the tenant keep the provider they use for that lease period.  If the landlord is the one that is paying, the landlord should be able to change utility providers immediately.  Ultimately, the lease should be the deciding factor on how utilities will be handled.

Limitations on the Old Lease

The new landlord is only bound to the lease term at present.  This does not give veteran tenants indefinite liberties on the property.  Once the lease period has passed, the new landlord is able to provide new lease terms and conditions at the lease renewal.  If the tenant is not satisfied with the new terms and conditions, the tenant is free to live in another property.  The landlord is no longer required to provide the old lease to the tenant.

Obviously, the old lease does not pertain to new tenants as they haven’t signed such a document.  The new lease terms and conditions can be implemented with new tenants immediately so long as it does not impede on any of the liberties provided in the old lease for veteran tenants.  For example, if quiet hours are different between the two leases, you might hear some complaints.

Is it Permissible to Screen Veteran Residents?

Screening veteran tenants upon the purchase of the property will serve you no purpose since you are bound by the present lease for the property.  You are however able to screen those residents when the lease is up for renewal.  A lot can change after a year or more.  At this point, there is now a new lease, a new landlord, and newly established criteria for accepting applications.  Be sure to follow the same criteria for every prospective resident.  If there are significant issues found in the background check and you determine the tenant does not meet your leasing criteria, you can then provide an adverse action letter informing the tenant of your decision.

** Always be sure to follow all proper procedures when handling a tenant.  Please be sure that any metric you use in review of an application must be applied to all applications to rent.  A comprehensive view of F.C.R.A. law and procedures can be found here.  Also be sure to follow all fair housing laws and not to discriminate based on race, gender, minority group, etc.  Please also observe local ordinances, which may supersede some federal laws. **