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Landlord breaking lease to sell property... What's fair compensation?

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Old May 18th, 2012, 08:15 PM   #1
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Default Landlord breaking lease to sell property... What's fair compensation?

I own a home that I was originally trying to sell. After difficulty trying to sell I offered it up as a rental. I found a tenant and signed a lease to begin in a couple months. I did not deposit the security deposit yet. Within a week of signing the lease, I received an offer to purchase my home and would now like to break the lease and sell my home. I'm not against compensating the future tenant, but they signed the lease less than a week ago, and I'm not in a position to compensate them that much. What would be my obligation to compensate them for their inconvenience, knowing that the lease was only signed a week ago, and the move in date isn't for another 6 weeks or so. What's fair compensation? Tenant seems to feel their entitled to a lot.
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Old May 18th, 2012, 08:34 PM   #2
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Default re: Landlord breaking lease to sell property... What's fair compensation?

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I own a home that I was originally trying to sell. After difficulty trying to sell I offered it up as a rental. I found a tenant and signed a lease to begin in a couple months. I did not deposit the security deposit yet. Within a week of signing the lease, I received an offer to purchase my home and would now like to break the lease and sell my home. I'm not against compensating the future tenant, but they signed the lease less than a week ago, and I'm not in a position to compensate them that much. What would be my obligation to compensate them for their inconvenience, knowing that the lease was only signed a week ago, and the move in date isn't for another 6 weeks or so. What's fair compensation? Tenant seems to feel their entitled to a lot.
The tenant doesn't have to accept ANY compensation.

You signed a legally binding lease agreement. If the roles were reversed, you would be legally entitled to rent until a replacement tenant was found, or until the end of the lease, whichever occurs first. You would ALSO be entitled to recover any/all expenses you incurred as a result of the lease break, including advertising and screening costs.

The tenant is losing out on a place to live. They have likely given notice at their current residence, which won't necessarily be able to be rescinded. They have started packing up and planning to move out on a particular date. You would be liable to them for any/all expenses they may incur due to these issues. You will ALSO be liable to them for each and every day they have to spend in alternative housing while looking for another place. You could be held liable for any storage costs for their personal property while they look, any expenses they incur to start searching again, and any personal expenses they incur as a result of having to start their search again. If they have pets, and cannot stay with them in their temporary housing, you could be responsible for kennel costs.

Are you picking up what I'm putting down?

You can hope that the tenant actually FINDS a permanent housing situation to replace your broken lease prior to the effective date of your lease. If they don't, then it could end up being a very expensive mistake on your part to try to break that lease. In those situations, it is customary to pay them enough money commensurate with the expenses they would ordinarily incur. I'm not sure what their situation is, but consider that when deciding how much you want to offer them.

All that being said, your lease CAN be transferred to the new owner upon the sale. That would mean that the new owner would ALSO be bound by the lease for as long as it is effective. Of course, that fact alone might affect whether or not the potential buyer would want to go through with the purchase, especially if they intend to occupy the property themselves.

The bottom line is that you should NEVER have signed a lease while the property was up for sale unless you intended to have the buyer maintain the property as a rental themselves. You have an obligation to notify the potential buyer of the lease you signed, because if you can't find a solution to your lease issue, that is certainly something that will be crucial information for the sale.
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Old May 18th, 2012, 08:45 PM   #3
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Default re: Landlord breaking lease to sell property... What's fair compensation?

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The tenant doesn't have to accept ANY compensation.

You signed a legally binding lease agreement. If the roles were reversed, you would be legally entitled to rent until a replacement tenant was found, or until the end of the lease, whichever occurs first. You would ALSO be entitled to recover any/all expenses you incurred as a result of the lease break, including advertising and screening costs.

The tenant is losing out on a place to live. They have likely given notice at their current residence, which won't necessarily be able to be rescinded. They have started packing up and planning to move out on a particular date. You would be liable to them for any/all expenses they may incur due to these issues. You will ALSO be liable to them for each and every day they have to spend in alternative housing while looking for another place. You could be held liable for any storage costs for their personal property while they look, any expenses they incur to start searching again, and any personal expenses they incur as a result of having to start their search again. If they have pets, and cannot stay with them in their temporary housing, you could be responsible for kennel costs.

Are you picking up what I'm putting down?

You can hope that the tenant actually FINDS a permanent housing situation to replace your broken lease prior to the effective date of your lease. If they don't, then it could end up being a very expensive mistake on your part to try to break that lease. In those situations, it is customary to pay them enough money commensurate with the expenses they would ordinarily incur. I'm not sure what their situation is, but consider that when deciding how much you want to offer them.

All that being said, your lease CAN be transferred to the new owner upon the sale. That would mean that the new owner would ALSO be bound by the lease for as long as it is effective. Of course, that fact alone might affect whether or not the potential buyer would want to go through with the purchase, especially if they intend to occupy the property themselves.

The bottom line is that you should NEVER have signed a lease while the property was up for sale unless you intended to have the buyer maintain the property as a rental themselves. You have an obligation to notify the potential buyer of the lease you signed, because if you can't find a solution to your lease issue, that is certainly something that will be crucial information for the sale.
As soon as the lease was signed, we removed the property as a for sale property, but this interested buyer had already seen the property listed and was already interested, although I did not know that when we signed the lease. The new potential owner wants to occupy the home, not rent it out.

I understand the proposed tenant has some inconvenience, but they only signed the lease 6 days ago and weren't scheduled to take occupancy for another 6 weeks. So, I understand there are some costs incurred, but I have a hard time believing they would be excessive. I also understand the proposed tenant doesn't have to accept anything, and again, I'm okay with giving them some money, but I'm hardly making anything on the sale and I'm not sitting on a pile of cash, so I'm just hoping they'll be reasonable in what they think is fair compensation for me breaking the lease before occupancy only 6 days after the signed lease. We'll see, proposed tenant wants to talk to their attorney. I get that they have rights here, I'm just looking for a little humanity. I'll pay them a reasonable amount for 6 days worth of inconvenience, a months rent, etc., but they're not winning the lottery off of me.
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Old May 18th, 2012, 09:08 PM   #4
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Default re: Landlord breaking lease to sell property... What's fair compensation?

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As soon as the lease was signed, we removed the property as a for sale property, but this interested buyer had already seen the property listed and was already interested, although I did not know that when we signed the lease. The new potential owner wants to occupy the home, not rent it out.

I understand the proposed tenant has some inconvenience, but they only signed the lease 6 days ago and weren't scheduled to take occupancy for another 6 weeks. So, I understand there are some costs incurred, but I have a hard time believing they would be excessive. I also understand the proposed tenant doesn't have to accept anything, and again, I'm okay with giving them some money, but I'm hardly making anything on the sale and I'm not sitting on a pile of cash, so I'm just hoping they'll be reasonable in what they think is fair compensation for me breaking the lease before occupancy only 6 days after the signed lease. We'll see, proposed tenant wants to talk to their attorney. I get that they have rights here, I'm just looking for a little humanity. I'll pay them a reasonable amount for 6 days worth of inconvenience, a months rent, etc., but they're not winning the lottery off of me.
The lease supercedes any offer your potential buyer made. All you needed to tell them was that the property had been rented out.

What you think the inconvenience is worth may be well below what it actually IS worth.

One more thing you may not be considering. If your tenant finds a different place that costs MORE to rent per month than was covered under your lease, they are entitled to every extra dollar from you that they have to spend to take that rental. For instance, if the rent is more, you would be obligated to pay them the difference in rent. If your rental included utilities, and the new rental they might find does not, then they are also entitled to the extra costs of those utilities, PLUS any deposits they have to pay to secure the utility service accounts. Why? Because if you honored the lease, the tenant wouldn't have to pay these.

One month's rent may not cover it for them. You need to be prepared for that. After all, it's not THEIR fault you chose to accept an offer on a property that was, in your words, no longer available for sale.
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Old May 18th, 2012, 09:16 PM   #5
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Default re: Landlord breaking lease to sell property... What's fair compensation?

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The lease supercedes any offer your potential buyer made. All you needed to tell them was that the property had been rented out.

What you think the inconvenience is worth may be well below what it actually IS worth.

One more thing you may not be considering. If your tenant finds a different place that costs MORE to rent per month than was covered under your lease, they are entitled to every extra dollar from you that they have to spend to take that rental. For instance, if the rent is more, you would be obligated to pay them the difference in rent. If your rental included utilities, and the new rental they might find does not, then they are also entitled to the extra costs of those utilities, PLUS any deposits they have to pay to secure the utility service accounts. Why? Because if you honored the lease, the tenant wouldn't have to pay these.

One month's rent may not cover it for them. You need to be prepared for that. After all, it's not THEIR fault you chose to accept an offer on a property that was, in your words, no longer available for sale.
Makes sense, I'll just have to wait and see what the tenant thinks is fair. I did not sign anything related to the sale, pending some type of agreement with the tenant. Obviously, if I can't reach a reasonable agreement with the tenant, I won't accept the offer from the purchaser, and I'll proceed to rent the place to the tenant (begrudgingly).
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Old May 19th, 2012, 11:10 AM   #6
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Default Re: Landlord breaking lease to sell property... What's fair compensation?

Yes, when you signed the lease you encumbered the property with a binding lease. Any sale you made would be subject to that lease and the new purchaser would have to abide by it.

See what the lessee wants and if it is double his deposit, you will be getting off easy.
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Old May 19th, 2012, 12:43 PM   #7
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Default Re: Landlord breaking lease to sell property... What's fair compensation?

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Yes, when you signed the lease you encumbered the property with a binding lease. Any sale you made would be subject to that lease and the new purchaser would have to abide by it.

See what the lessee wants and if it is double his deposit, you will be getting off easy.
His deposit was $5,800 (2 months rent), so $11,600 ain't happening. I'll keep him as a tenant and forego the sale long before I'll pay someone $11,600 for a week's worth of inconvenience.
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Old May 19th, 2012, 01:19 PM   #8
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Default Re: Landlord breaking lease to sell property... What's fair compensation?

One month's rent is the usual security deposit. Are you sure that the security is 2 months? Or is it one month's security deposit and one month's rent.

Finding a suitable place to rent may mean more than "one week's inconvenience" to your tenant. The last time I looked for a rental I spent 29 solid days looking for the right place, with large enough rooms, in the right location. Had I lost the place I settled on, it well could have taken me 3 to 4 weeks again. And every property is unique. So unless you have a cookie cutter place with readily available units just like yours, it may be a lot more than "a week's inconvenience" to your tenant to find another place to lease.

Evaluate the sale, as I am sure you will do, and then decide whether whatever the tenant wants to walk away is worth it to keep the sale. And be sure your buyer is pre qualified so you do not opt for the sale and end up with nothing in hand.
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Old May 19th, 2012, 07:37 PM   #9
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Default Re: Landlord breaking lease to sell property... What's fair compensation?

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One month's rent is the usual security deposit. Are you sure that the security is 2 months? Or is it one month's security deposit and one month's rent.

Finding a suitable place to rent may mean more than "one week's inconvenience" to your tenant. The last time I looked for a rental I spent 29 solid days looking for the right place, with large enough rooms, in the right location. Had I lost the place I settled on, it well could have taken me 3 to 4 weeks again. And every property is unique. So unless you have a cookie cutter place with readily available units just like yours, it may be a lot more than "a week's inconvenience" to your tenant to find another place to lease.

Evaluate the sale, as I am sure you will do, and then decide whether whatever the tenant wants to walk away is worth it to keep the sale. And be sure your buyer is pre qualified so you do not opt for the sale and end up with nothing in hand.
It is two months security. His first month's rent isn't due til two weeks before occupancy which is still a few weeks off. I will, of course, have to evaluate the sale against what he's asking. I would rather sell of course, I just don't have any cash in hand to pay him off. So, unless he settles for a reasonable amount, or is willing to gamble on the sale going through like I am, I'm limited in what I can offer. The buyer is pre-approved for a vet loan, which I'm told is virtually guaranteed so I feel good there, but there is the issue of whether the appraisal would come in high enough. I can't offer this guy $10K because if the sale doesn't go through, I can't come up with those funds.

Also, it's not like he spent a lot of time finding my place. I listed it as a rental one day, and he deposited two days later, and I'm trying to get out of it only 6 days after deposit. So, he's only invested 8 days in it. If he has to start over, I'm not buying that he has to invest another month or two to find another suitable place. If he does, then I guess the deal I offered him was way too sweet to begin with.
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Old May 19th, 2012, 08:59 PM   #10
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It is two months security. His first month's rent isn't due til two weeks before occupancy which is still a few weeks off. I will, of course, have to evaluate the sale against what he's asking. I would rather sell of course, I just don't have any cash in hand to pay him off. So, unless he settles for a reasonable amount, or is willing to gamble on the sale going through like I am, I'm limited in what I can offer. The buyer is pre-approved for a vet loan, which I'm told is virtually guaranteed so I feel good there, but there is the issue of whether the appraisal would come in high enough. I can't offer this guy $10K because if the sale doesn't go through, I can't come up with those funds.

Also, it's not like he spent a lot of time finding my place. I listed it as a rental one day, and he deposited two days later, and I'm trying to get out of it only 6 days after deposit. So, he's only invested 8 days in it. If he has to start over, I'm not buying that he has to invest another month or two to find another suitable place. If he does, then I guess the deal I offered him was way too sweet to begin with.
Doesn't matter.

You entertained an offer from someone wanting to buy the property AFTER you claimed to have removed the property from the market, and AFTER you signed the lease. I'm sure you figured you could just tell the tenant you changed your mind and they would go with it. If they don't want to, they are not obligated to. It was an expensive gamble, and you are going to be on the losing end of it.

The tenants are NOT obligated to go looking for another place, either. Why should they? In your own words, they got themselves a sweet deal. If I had a sweet deal that was fully enforceable, and someone was trying to renege on it, why should I? That just lends more credibility to the fact that it's going to cost them MORE to find a replacement rental that is comparable to the one they found with you. That's incentive and grounds for them to hold out for significantly more than what YOU consider an appropriate amount. They aren't being greedy or inconsiderate. They are being REALISTIC, and you need to be as well.

If you're not willing to offer then at least two months' rent to buy out the lease, then you should just stop now and plan on rejecting the possibility of a sale.
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