Category Archives: Leases

hand-101003_640 Although more common in commercial transactions, many residential transactions involve the sale of homes subject to existing leases and tenants. A potential buyer of a property in which a tenant currently resides should be aware of the legal status of such leases after closing, and be comfortable with rights and obligations imposed on them by the lease after closing.

For whatever reason, many folks believe that once a property sells, any existing lease automatically terminates, and the new buyer would have the right to immediate possession. This misunderstanding is obviously incorrect; an existing lease, whether written or oral, conveys a leasehold interest in the land that would be superior to any contractual rights that may arise thereafter. Therefore, anyone who goes under contract to buy the property, and ultimately closes on the purchase, would take title subject to the pre-existing lease. The new buyer would in effect step into the shoes of the seller as landlord until the term of the lease has expired. Yes, the new buyer would be entitled to future rent payments made under the lease, but would also be responsible for any obligations and promises the previous owner may have agreed to under the lease.

Because the new buyer will be saddled with the rights and obligations due under the lease, it is imperative that the buyer conduct sufficient due diligence to understand what they are taking on. What does the buyer need to know? For starters, what are the basic terms? Length, amount of rent, rights to renew or purchase, responsibility for repairs, maintenance, taxes, insurance, and the like, are all important. Are the tenants current on rent? Has the tenant pre-paid any rent? The last thing a new buyer wants to find out when he or she becomes the new landlord is that the tenant has prepaid rent for a year, will not be paying any future rent during that time, and oh, by the way, the landlord promised in writing to replace the roof the next month (true fact scenario!).

Most commercial sales contracts contain clauses that provide satisfactory treatment of these issues, but the TREC contract is fairly bare. Fortunately, TREC amended the base form last year to help a bit. Now, under Par. 10B., the seller must provide copies of existing leases within 7 days of the contract effective date. The Buyer will want a chance to review the lease and get comfortable with the terms, so it is important that an option period extend a minimum of 10 days. If the Buyer doesn’t like the lease terms, they would be able to terminate the contract during the option period. Par. 9B (5) provides that any security deposit will be transferred from seller to buyer at closing, and Par. 13 provides that rent will be prorated at closing.

But what important agreement does the TREC form lack? Most well-drafted commercial properties require the seller to obtain an “estoppel certificate” from the tenant, and provide it to the buyer during the option period. An estoppel certificate is a statement from the tenant themselves as to the tenant’s understanding of the lease terms, the amount of rent already paid, and any accrued obligations owed by the landlord. It is always best to confirm with the tenant that they are in agreement with the landlord’s characterization of the lease status. A buyer is well advised to add a provision in Par. 11 calling for an estoppel certificate.

Because lease and tenant-related issues expand the complexity of the transaction, the assistance of a competent attorney will be of great help in wording the contract and evaluating future rights and obligations. Armed with these protections, buyers of tenant-occupied property are in better position to protect themselves from post-closing lease surprises.

Contact Rattikin & Rattikin, LLP

Jeffrey A. Rattikin is an AV Pre-eminent rated attorney, Board -Certified in Residential Real Estate Law by the Texas Board of Legal Specialization. Mr. Rattikin has provided transactional legal services to clients across the State of Texas for over 28 years, emphasizing real estate, business and title law. Mr. Rattikin continues to define new legal frontiers through his incorporation of technology to enhance the attorney-client experience, as evidenced by his firm’s innovative websites www.rattikinlaw.com and www.texaslegaldocs.com.

Contracts, Leases, Legal Documents, Mortgage/Finance

Tenant Evictions – a Time Consuming Process

January 18, 2016 Jeff Rattikin

hand-101003_640 If you clients are faced with the need to evict a tenant, they should know that the process must be undertaken in strict adherence to the Texas statutes, and may take longer than expected. If a tenant knows how to play the game, they could stretch out the ordeal for well over a month before possession is finally obtained.

The job of a landlord is never easy, but perhaps the most difficult task most landlords face is retaking possession of a property after a tenant default or lease expiration. The Texas statutes are very precise in outlining the requirements an evicting landlord must follow.

It’s important to understand that for residential tenancies, a landlord cannot simply lock out the tenant and haul off their possessions. A landlord must first properly terminate the right to possession in accordance with the terms of the lease, and then send a three-day written notice of termination before an eviction suit can be filed. Once an eviction suit is filed in the appropriate court, a minimum of six days must pass before a hearing is held. Assuming the landlord is successful at the hearing, a judge will not issue a writ of possession until five additional days expire, during which the tenant may appeal. And after the writ is finally issued, a constable will post an eviction notice on the premises, giving typically three more days before a locksmith and moving crews can show up to physically remove the inhabitants and belongings. All in all, an eviction will take a minimum of 20 days or so after lease termination, and if an appeal is filed, the process can be extended for months. Ultimately, a landlord will often retake possession from an extremely agitated and disgruntled tenant, who may vacate the property in less than pristine condition.

A prudent property owner should understand the inherent risks involved with rental property, and conduct appropriate credit checks and due diligence on any prospective tenant before agreeing to turn over possession to such a valuable asset.

Contact Rattikin & Rattikin, LLP

Condominium Ownership, Leases

Condominiums – Ownership of Airspace, and More

January 7, 2016 Jeff Rattikin

condominium-690086_640 A condominium represents a completely different animal from its cousins the duplex and the townhome. Differing contract forms and due diligence considerations make a condo deal a bit more sophisticated. A clear understanding of condo regimes will help facilitate a smooth condo transaction.

Residential condominiums differ in concept from all other real property interests. Typically, an owner of a lot owns all rights below, at and above the surface of the property. Ownership extends from the center of the earth up to the heavens above, subject of course, to other rules, laws and easements (for instance, although you may own air rights to the heavens above the surface of your lot, allowing you to build multi-story buildings on your lot if zoning permits, an airplane has a right to cross your airspace pursuant to federal and international law). So if title to property is held and described according to plats and surveys of the surface, how can one owner take ownership of a unit above the unit of another?

The answer lies in the concept of a condominium regime. If an owner of a parcel of land files the necessary paperwork to create a condominium regime, then he or she can build a structure on the land and carve up ownership in that structure into separate units, which may or may not be stacked on top of each other. In essence, it allows a property owner to carve up the airspace above the surface, and sell that airspace separately. A prospective owner of a condo unit must understand that they will not purchase the land underneath the structure; they will be purchasing the interior space of a unit within the structure, typically with a percentage interest in all the common areas shared with other condo owners. The purchaser must read and understand all the rules and regulations of the condo regime which govern the shared ownership of the property and structure.