Buying a rental property with S.8 Tenants

Buying a home with existing tenants is a risky proposition. There are steps you can take to dramatically decrease your risk for issues and I will be posting a video blog shortly that will address those in detail.

 

However, in the meantime, I want to identify one key point regarding s. 8 tenants.  If the property you are buying has an existing tenant that is subsidized through one of the various State or Federal programs, it is critical that you put a provision in your purchase sale that makes your purchase contingent upon the seller notifying s.8 of the impending sale and having the appropriate authority do a final inspection and approve the transfer.  Further, you want to state that any conditions that need to be addressed in order for s. 8 to approve the transfer shall be at the sole expense of the seller.

 

There is more to come on this topic so stay tuned.

Eviction agreements

If you are involved in a landlord/tenant dispute and you are either the landlord or you represent the landlord, it is often advisable to try and work out an agreement with a tenant rather than waiting for a trial and having the court decide the outcome.

 

One of the biggest mistakes landlords make is that they enter an agreement with the tenant, but it is not specifically an agreement for judgment and it is not filed with the Court.  Unfortunately such an agreement would likely not be very enforceable.

 

When I represent a landlord and I am able to negotiate an agreement with a tenant, the following terms are almost always included:

1.  Judgment for the Landlord for possession and damages immediately.

2. Execution to be stayed to the agreed upon move out date.

3. I make it specific that every term of the agreement is material and further that any one violation of a term on any one occasion shall be considered a breach of a material provision of this Agreement.

4. Tenant agrees to fully vacate by a certain date.

5. I define fully vacate as follows: removing all persons, personal items, furniture, non-fixtures, trash, debris, and items of any kind or whatever nature from the unit and leaving the unit in broom clean condition. Further, no personal items or trash or debris shall be left on the property or in any common area on the property.  If Defendants/Tenants set out trash for city removal, the Defendant/Tenants will ensure it is an amount and type of trash the city will remove for normal trash pickup. Defendant/Tenant will be in breach of this provision if they leave items the city does not normally remove.

6. If the tenant vacates in accordance with these terms then the matter shall be dismissed.

7. In consideration of this, the tenant waives and releases any claim they may have. I also have them sign a separate release.

8. Depending on the specific negotiation the tenant may make payments until the move out date or payments may be waived.

9.  If the tenant does not vacate or if the tenant violates any portion of the agreement then execution shall issue for possession and damages immediately upon receipt by the Clerk’s office of an affidavit by the landlord confirming that the tenants did not comply with the terms herein. This is important to word it like this so you don’t have file a formal motion.

10. Tenants waive their rights to appeal and waive the right to seek further stay of execution for possession.

11. If the tenant breaches any portion of the agreement then they shall be liable to the other party for all costs, legal fees and/or expenses incurred in enforcing the terms of this agreement.  Such amount shall be added to the Judgment by Motion where appropriate.

12. All parties have fully read this Agreement for Judgment and fully understand their rights and obligations hereunder.  All parties agree they have had the opportunity to consult legal counsel regarding this Agreement. All parties agree they are signing this Agreement by their own free will and accord without duress or undue influence.

13.  No new tenancy will be created by the action of either party after this document is executed. A new tenancy shall only commence upon a written agreement signed by both parties outlining the same.

 

Every case is unique and no one agreement is good for every situation, but if you are a landlord you want to make sure you start with the above terms.

The security deposit statute broken down.

Massachusetts security deposit

1. When the deposit is tendered, the landlord must give the tenant a written receipt which provides:

a. the amount of the deposit

b. the name of the landlord/agent

c. the date of receipt

d. the property address.

e. and a description of the rented or leased premises,

2. Within 30 days of the money being deposited, the landlord must provide the tenant with a receipt identifying the bank where the deposit is held, the amount and account number.

3. At either the time of receiving or within 10 days after the tenancy begins; give the tenant a “Statement of Condition,” signed by the landlord, which must contain:

a. a comprehensive list of all damages then existing (including violations of any housing or building codes); and the following statement in 12 point boldface type at the top of the first page:

“This is a statement of the condition of the premises you have leased or rented.  You should read it carefully in order to see if it is correct.  If it is correct you must sign it.  This will show that you agree that the list is correct and complete.  If it is not correct, you must attach a separate signed list of any damage which you believe exists in the premises.  This statement must be returned to the lessor or his agent within 15 days after you receive this list or within 15 days after you move in, whichever is later.  If you do not return this list, within the specified time period, a court may later view your failure to return the list as your agreement that the  list is complete and correct in any suit which you may bring to recover the security deposit.”

b. Return a copy of any separate list of damages submitted by the tenant within 15 days with either a signed agreement or disagreement with the list.

4. The security deposit must be held in a separate interest bearing account in a Massachusetts financial institution protected from the landlord’s creditors.

5. The landlord must pay the tenant interest on the security deposit annually if held for more than one year. At the end of each year of a tenancy, such lessor shall give or send to the tenant from whom a security deposit has been received a statement which shall indicate the name and address of the bank in which the security deposit has been placed, the amount of the deposit, the account number, and the amount of interest payable by such lessor to the tenant. The lessor shall at the same time give or send to each such tenant the interest which is due or shall include with the statement required by this clause a notification that the tenant may deduct the interest from the tenant’s next rental payment. If, after thirty days from the end of each year of the tenancy, the tenant has not received such notice or payment, the tenant may deduct from his next rent payment the interest due.

6.  if you have a written tenancy agreement or lease, the following language must be included in the agreement: “STATEMENT REGARDING SECURITY DEPOSITS: The owner must hold the security deposit in a separate, interest bearing account and give to the tenant a receipt and notice of the bank and account number; that the owner must pay interest, at the end of each year of the tenancy, if the security deposit is held for one year or longer from the commencement of the tenancy; that the owner must submit to the tenant a separate written statement of the present condition of the premises, as required by law, and that, if the tenant disagrees with the owner’s statement of condition, he/she must attach a separate list of any damage existing in the premises and return the statement to the owner; that the owner must, within thirty days after the end of the tenancy, return to the tenant the security deposit, with interest, less lawful deductions as provided in M.G.L. c. 186, s. 15B; that if the owner deducts for damage to the premises, the owner shall provide to the tenant, an itemized list of such damage, and written evidence indicating the actual or estimated cost of repairs necessary to correct such damage; that no amount shall be deducted from the security deposit for any damage which was listed in the separate written statement of present condition or any damage listed in any  separate list submitted by the tenant and signed by the owner or his agent; that, if the owner transfers the tenant’s dwelling unit, the owner shall transfer the security deposit, with any accrued interest, to the owner’s successor in interest for the benefit of the tenant”

7. The security deposit may only be used to reimburse the landlord for unpaid rent, reasonable damage to the unit or unpaid tax increases if part of the lease. Security deposits cannot be used for general eviction costs or attorneys’ fees. Within 30 days of the tenant’s leaving, the landlord must return the deposit plus any unpaid interest or provide a sworn, itemized list of deductions for damage with estimates for the work. Only then can the landlord retain any portion of the deposit.

 

Lease v. Tenancy at Will

The most common question I get from landlords is which is better: a lease or a tenancy at will (TAW).  To answer this question we must first understand the difference.   A leased tenancy is for fixed term.  It can be any fixed term, but the most common in residential real estate is a one year lease payable in 12 monthly installments.  A tenancy at will is a month to month tenancy with no fixed term.   Leases have to be in writing.  Tenancies at will can either be in writing or produced orally.  Also, after the term of lease expires, if the tenant remains and continues to pay rent monthly and the landlord accepts the rent then the tenancy automatically becomes a tenancy at will.

Regardless of which you choose, it should ALWAYS be in writing.  That is true whether you are a landlord or a tenant.  Having all the terms of the tenancy written out and acknowledged by both parties will make for a smoother tenancy for all involved.

Now that you know the difference, the question is: which is better?  The answer is not the same for everyone.  So, let’s examine some of the rules that are applicable to each and then you can apply those to your situation to decide which you would prefer.

Termination.  When it comes to a non-payment of rent situation the same notice is required under both the lease and TAW.  You have to give minimum of 14 days’ notice to terminate a tenancy if it is for non-payment of rent.  However, when it comes to an eviction for fault there is a dramatic difference between the two.  In a lease you can dictate as little as 7 days’ notice to terminate a tenancy based on a violation of the tenancy agreement.  If you have TAW then you have to give 30 days or a full rental period, whichever is longer to terminate due to fault.  In practicality this is how that works:  Assume you have a written tenancy a will at one property and a written lease at another that dictates the rules of the tenancy.  You find on out June 3rd that the tenant is violating one of the provisions of the tenancy agreement and it is bad enough that you want to terminate the tenancy.  Under the lease, you can terminate the tenancy upon 7 days’ notice therefore your termination would be effective June 11, 2012 assuming you gave notice on June 3rd.  Under the TAW you would have to give 30 days’ notice plus the rental period, therefore the termination date would be August 1, 2012: a difference of almost 49 days.  49 days is a long time to wait when dealing with an active violation of your tenancy agreement.

Cure rights.  Cure rights are the amount of time a tenant has to pay what is due after they have fallen behind.   If the rent is due on the first of the month and the tenant doesn’t pay, you can terminate either the lease or TAW by 14 days’ notice.  Under a TAW the tenant has the right pay what is due in order to stop the termination.  However, the tenant can only cure once in a 12 month period.  Therefore, if the tenant pays late on June 1st and you serve a 14 day notice and then the tenant pays everything due then the tenancy is reinstated.  However, if the tenant then pays late for July and you terminate by 14 days’ notice and then the tenant tries to pay, it is up to the landlord as to whether he or she wants to accept that cure payment and reinstate the tenancy.   Under a lease, unless the lease provides otherwise, the tenant can always cure.   So, the tenant could pay late every month and after notice, he could cure and reinstate the tenancy.  This could be quite burdensome for the landlord.  One easy fix to prevent this is to put a provision in the lease that states that 3 or more late payments in any calendar year shall be a material violation of this lease.

Locked in. As you now know, leases are for fixed terms and TAW are month to month.  Therefore, if you have a lease and the tenant wishes to vacate before the end of the term, he or she will remain liable for the balance of the rent for the remainder of the term.  There are requirements that need to be met by the landlord prior to being able to collect the balance of  the rent, but assuming everything is met, this is a good security blanket for a landlord.  As there is no term with a TAW, the tenant can terminate upon 30 days’ notice and then the landlord is stuck trying to fill the vacancy.

No fault. So far, most of what is outlined above makes leases the preferred choice of landlords; however this last consideration is an invaluable one in support of a TAW.  I call it the “jerk” factor.  Assume you have a three family and you live on the first floor and you are renting out the second and third floor to two different families.  You have a one year lease with the 2nd floor tenants and a TAW with the third floor tenants.  Because you live at the property you have numerous interactions with each tenant.  You see them each day coming and going from work. You sometimes are in the common areas of the property and you have interactions with each of them.  Over time you come to find that one of the tenants is just not a good person.  They are rude and obnoxious and you feel uncomfortable every time you are around them.  Nothing they do rises to the level of a violation of a provision of your tenancy, but the bottom line is that you just simple don’t like them and don’t want them around your property where you and your family live.  You are stuck with the lease tenants because it is a fixed term and since they haven’t actually done anything in violation of the lease, you cannot terminate their tenancy for “no fault”.  However the TAW can be terminated for “no fault”.  Meaning you can just give them 30 days’ notice and then regain possession.  The times that I will recommend a TAW almost always involve an owner occupied multifamily and it is for this reason.

This has given you a very brief outline of some of the main benefits and detriments to a lease or TAW.  There are numerous other factors that should be taken into consideration.  Please feel free to reach out to Attorney Ken Vining and he will evaluate your personal situation and discuss in detail all the pros and cons of the lease and TAW and come up with what best suits your needs.