Buying a home with existing tenants has many traps for the unwary. While there are advantages to having existing tenants with the purchase of a home, there are also potential areas of liability. Here are three things to keep in mind when considering such a purchase.
1. Existing Tenancies Do Not End When a Home Is Sold
If a landlord-tenant relationship existed between the tenants and the prior owners of the home, that tenancy continues with the new owner. This is true regardless of whether there was a written lease or a tenancy at will (month-to-month lease agreement). The same terms of the prior tenancy agreement, in almost all cases, will carry over to the new owner of the home.
If a new home owner does not wish to have tenants (or wants new ones), an eviction will be necessary. Any attempt to remove tenants without a formal court case is a huge, huge violation of the law and comes with steep penalties.
If you are buying a home with existing tenants, and do not want to keep these tenants, it is strongly worth considering making the existing owner deliver the property without tenants in it.
2.Proceed With Caution With a Security Deposit
If the prior owner of the home accepted a security deposit from the tenants, you as the new owner are responsible for this deposit (unless the prior owner returned it to the tenants). The law requires the new owner to notify the tenants that they received this deposit and to comply with this law’s detailed provisions on holding a security deposit.
If the prior owner returned the deposit to the tenants, be sure to get this in writing.
As I have written about in the past, Massachusetts’s security deposit law is an incredibly complex law, filled with numerous regulations on the acceptance, holding, and return of a security deposit. New landlords should give careful consideration to not accepting a security deposit in the first place.
3.Landlords Must Maintain Residential Rental Property
Residential rental property comes with an implied warranty of habitability. This means that the property is fit for human habitation. The most common standard for measuring this is through compliance with the state sanitary code, a detailed list of the minimum standards for residential property. Local municipalities, as well as tenants themselves, have the right to enforce these regulations.
Residential rental property is quite different from commercial rental property, which is often rented “as is.” This is not allowed for residential rentals, and any attempt to get a tenant to waive the warranty of habitability will be void.
If you are buying a home with existing tenants, you need to be aware of these obligations. Failure to maintain rental property can lead to enormous liability, expenses, and other costs.
If you need assistance with a landlord-tenant matter, contact me for a consultation.