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When buying any real estate, there is a long list of issues that must be considered. When buying rental properties, issues related to existing tenants should be near the top of the list. Existing tenants in investment property can be either assets or liabilities. Whenever you buy the tenants with the real estate, protect yourself by covering certain issues in the purchase contract.
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You want to avoid the possibility of post-closing claims from continuing tenants regarding rents, deposits, or lease-related agreements that were not disclosed to you by the seller. A lease transfers with transfer of property ownership, so any claim of a previous tenant against the seller can be valid against the buyer. The buyer become liable to existing tenants for security deposits(and any other potentially refundable amounts) whether or not the buyer received credit for those amounts at close of escrow.
Finally, although you might have legal recourse against the seller regarding the above issues, avoidance of claims is better than hassles, including lawsuits. Efforts to collect for any damages might be completely ineffective if the seller retired to Mexico following close of escrow.
Basically, an estoppel certificate is a document that requires the tenant to confirm such issues as the correct rent amount, the date to which rent has been paid, the current amount of the tenant’s security deposit, and that the attached lease agreement documents are the only lease documents relevant to the current tenancy. It should also confirm that the tenant has no lawsuits, regulatory agency actions, or other claims pending against the property.
Second, the contract should require that legal possession of vacant units be verified to the degree possible. This is usually most easily done by requiring copies of the most recent documentation related to the vacant units, specifically, any written notices from the ex-tenant regarding intent to terminate tenancy or, better yet, a move-out checklist signed by the ex-tenant.
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