Inheriting Tenants—5 Useful Tips to Make it Work!

When we think about inheriting something, we think of money, jewelry, a sense of humor, good looks, and so on. Inheritance comes with a positive view. While purchasing an already occupied property and inheriting tenants can be positive, it can also come with difficulties.

Inheriting tenants will test the best of us.  If you don’t have the mindset, an understanding of the situation, and skills to work with your newfound position positively, it can be fraught with problems, risks, and bad outcomes.

Here are some useful tips you can use to ensure a smooth transition with your inherited tenants.

#1—Having a Great Mindset

The first thing is to check your mindset about the situation.  Are you starting with an attitude of defeat, hardship, and waiting to “deal” with everyone?  If you go into your inherited situation with this mindset, it will be difficult.

Instead, work to adopt a mindset of what’s possible with your tenants. Then, taking over can be a smooth rollout with outcomes you desire—on-time rent payment, tenants who are respectful of the property, and long-term leases.

Having a mindset of what you can do to make a smooth transition starts with understanding what you can do to make inheriting tenants a positive experience for everyone.

#2—Get an Estoppel Certificate

First, as an owner inheriting tenants, you must be concerned with an Estoppel Certificate.

When a multifamily property owner is selling or refinancing the property, they will use an Estoppel Certificate. It’s an essential piece of buy or lender’s due diligence. It is a simple, one-page form that tenants fill out to let the new landlord know the terms of their lease—to the best of their knowledge.  (million acres—A Motley Fool Service, 2020, What Is an Estoppel Certificate, and When Might It be Required, (https://www.millionacres.com/real-estate-investing/commercial-real-estate/what-estoppel-certificate-and-when-might-it-be-required/)

*NOTE—Be sure to check with your attorney about an Estoppel Certificate. 

#3—Honoring the Current Lease

When taking on inherited tenants, you must honor the conditions of the lease they signed.  You are legally bound to stand for the lease until it expires. 

When the lease agreement expires, you will have two options—

1.  If you want them to stay as tenants, enter into a new lease agreement of your making

2.   If you no longer want them as tenants, you and your tenant are both free to end the lease when the lease agreement is up. However, if you terminate the lease, you must do so with the proper legal notice.

*NOTE:  If you have criteria for the kind of tenant you want, then you may be able to establish early on which tenants you wish to continue a lease with and which ones you don’t.  With the knowledge of knowing who you don’t want to continue the landlord-tenant relationship, you can get ahead and start screening new tenants, so they’re ready to move in when the unit becomes available. 

#4—Screening Inherited Tenants

Many landlords don’t screen current tenants for a few reasons—they don’t screen them because they don’t know to, don’t want to upset anyone, or the lease renewal is coming up soon, and feel they can wait until then to screen them.

After going through the previous owner’s tenant records, you may be satisfied with the tenants as they appear on paper. However, being confident with them on paper doesn’t mean that you shouldn’t do all you can to build a good relationship with them from the beginning.

• You can consider interviewing each of them—meet them and learn about them.  Show interest in your tenants’ lives and find out if they have any requests as you take over. Of course, listening to their requests doesn’t mean that you can or will fulfill them, but you may learn ways to improve your property by listening sincerely.

• Another suggestion is to send a letter to each tenant before taking over the property or when you start.  Introduce yourself, your company, and let them know that you’re now responsible for all day-to-day operations of the property–answering all maintenance requests, lease questions, and anything to do with their tenancy.

There can’t ever be too much communication.  Starting your relationship with inherited tenants will significantly depend on the contact you provide.  The more they know you, like you, and trust you, the better chance you have for a smooth transition and a happy outcome for everyone.

#5—Raising Rent on Inherited Tenants

Of course, you must abide by the lease agreement and the rent specified until the agreement expires.

There are two options to consider:

• You can raise the rent on your inherited tenants as soon as their lease is up. However, if you decide to do this, you may have empty units because inherited tenants may not pay your rent increase and will have to move.

If you plan to raise the rent on inherited tenants when their lease is up, have a plan and be prepared for how you will fill the vacancies at your new rent price.

• Another option is to keep the rent the same for existing tenants when their lease is up, giving them some time to plan (maybe for another six months–this can be stipulated in the new lease agreement) and raise the rent for new tenants.  Operating this way may give you some time to transition to your new role because you won’t worry about too many vacancies.

A Final Thought

If you find yourself inheriting tenants, go after it with a great attitude, know what options are available to make the transition smooth, and always do your best to communicate with your tenants.

There is so much to gain for you and your inherited tenants if you embrace the situation.