The low inventory of new construction has recently motivated many real estate investors and property management companies to scoop up residential and commercial properties in Oregon, Washington and other parts of the United States. This trend has led to new questions about how to best handle certain situations to avoid unnecessarily exposing corporate investors to litigation. One concern that has emerged from all of this is how to best handle existing tenants when purchasing a new property for your portfolio.
Understanding real estate investors’ motives
There are generally two types of real estate investors; those who are looking to fix and flip and those looking to hold on to a property and rent or lease it for income.
Real estate investment companies looking to profit off of fixing and flipping properties for profit may prefer to move any existing tenants out so that they can perform a full demolition and quickly put the property back on the market, whether for rent or sale. Other investors may have no intentions of making repairs yet plan to renegotiate the residential rental agreement or commercial lease to ensure it reflects their terms and conditions of engagement and agreed-to rates.
In either situation, investment companies may find themselves wondering what strategies they can employ in dealing with tenants to ensure they don’t end up embroiled in litigation.
Options for dealing with tenants when purchasing commercial real estate
If you’re selling the property to a fellow landlord that has existing tenants, you may first need to take time to notify them of your plans to terminate their leases. Keep in mind each jurisdiction has notification requirements, and your lease agreement should spell out any additional terms you and your tenant originally agreed to.
Your prospective buyer may pull out of the deal to purchase your property unless you terminate the rental agreements you’ve previously entered into. If breaking the leases of existing tenants proves to be too costly or unworkable for some other reason, then it may be possible to have contingency clauses introduced into the purchase agreement. Such clauses may allow the purchase and closing to go through once the current tenant vacates the property. The new buyer may be able to lawfully walk away from the deal without penalty if it’s no longer amenable to them.
Real estate deals are often time-critical, but prospective new owners and tenants seldom care about that — especially when the sale of the property inconveniences them. Issues like these can give way to litigation, which can be costly unless disputes are addressed soon after they emerge.
