So You Have a Lease
September 1, 2006
We just bought a rental house and want to convert it into two units. But there is already a tenant in the house. The tenant’s lease doesn’t expire for eight months. How do we get him out? Thanks, Joe Landlord
We just bought a four-plex with existing tenants, all of whom have leases. How do we get them to sign new leases with us so they will stay? Any help would be appreciated, Jill Landlady
I get questions similar to these every week. The questions show one or both of two things. One, a lack of understanding about what a lease is; and two, that the selling Realtors in these sales violated their responsibility to their clients by failing to ensure that their clients understand what a lease is.
A lease is a binding contract that goes with the property, not with the owner. That means it does not matter who owns the property, the lease is still binding. When a new owner takes ownership of a property leases remain in force until the expiration of the contract. No one can change the terms of the lease, including raising the rent, adding extra fees, prohibiting pets, charging for parking, terminating a tenancy, or moving out as long as the lease is in effect.
The only ways a lessee can have his or her tenancy terminated is if he or she agrees to move out or is evicted for violating the terms of the lease, such as not paying the contracted rent. Any changes to the lease must be made with the agreement of the tenant or not at all.
So the answer to the first question, “You can’t.” If the tenant wants to stay in the property, that is his or her contractual right until the end of the lease period. You will have to wait eight months to convert the property into two units.
The answer to the second question is, “There is no need for the tenant to re-sign a lease. It remains in full effect with the new owner.”
The best part is that the lease also continues to bind your new tenant. He or she cannot move out before the lease expires without penalty or decide that now it is okay to move in four roommates and three pit bulls, and paint the living room black.
An even more important consideration is that prospective buyers of properties with existing leases need to read and approve the terms of those leases before they go through with any investment-property purchase. That might be lease terms that make it difficult to manage the property or will cost the new landlord unexpected money. Examples are such things as the landlord is to install new carpeting six months into the lease or completely repaint the interior of the unit; or the tenant has the option to renew at the present, below-market rent.
When we are buying investment property it is not just the price and terms of the purchase and the condition of the property that we need to consider. Just as important are who lives there and the terms of the tenancies.