Tenant in Possession

Tenant in Possession

Tenant in Possession is a very important aspect of a transaction.

RIPA [Residential Income Purchase Agreement]

  1. If the Buyer intends to keep tenants in a residential income property, this is best covered in the RIPA [Residential Income Purchase Agreement].
    1. Seller needs to provide copies of all existing Lease(s) for each Tenant.
    2. Seller needs to provide Tenant Estoppel Agreement(s) for each Tenant.
    3. Seller & Buyer need to come to an agreement of how to handle any security deposits involved.
    4. Existing Lease(s) may be cancelled as of Close of Escrow and new Lease(s) executed between current Tenants and new Buyer.

RPA [Residential Purchase Agreement]

If Buyer is purchasing property as a primary residence and Tenant remains in Property after Close of Escrow.

  • Seller’s Agent must confirm that Seller has given proper notice to vacate to the existing Tenant.
  • Buyer’s Agent must also confirm that Seller has given proper notice to vacate to the existing Tenant.
  1. Tenant must be given proper legal notice to vacate.
    1. Notice to Vacate must be at least 60 days notice, in writing, delivered by Certified Mail / Return Receipt Requested.
      1. Verbal notice is not adequate.
      2. Email notice is not adequate.
      3. Notice by regular mail is not adequate.
      4. Section 8 Tenants must be given 90-days notice.
      5. Being told   “Don’t worry, they will be out” is NOT sufficient evidence.
  2. Note RPA paragraph 9.D. Tenant-occupied property: Property shall be vacant at least 5 (or ___) Days Prior to Close Of Escrow, unless otherwise agreed in writing. Note to Seller: If you are unable to deliver Property vacant in accordance with rent control and other applicable Law, you may be in breach of this Agreement. OR ___Tenant to remain in possession (C.A.R. Form TIP).
  3. If existing Tenant is staying only a few days, it is recommended not to use the CAR Form TIP [Tenant in Possession], but to extend the Closing Date until the Seller has ensured the property is vacant. Otherwise, the Buyer would be responsible to make sure the Tenant vacates the Property.
    1. Typical scenario – Close of Escrow is on 27th of month and Tenant may remain until 30th.
      • Buyer is at great risk of Tenant not vacating on the 30th and then Buyer would have to assume the responsibility to make sure Tenant moves out before Buyer can move in.
      • Buyer can not move into property anyway – until Tenant moves out, so it is prudent to extend COE.
      • Extending Close of Escrow until Tenant moves out leaves the Seller with the responsibility to make sure Tenant is out before Buyer takes ownership.

Using RPA and the Buyer wants to keep Tenant in the Property

  1. If the Buyer intends to keep tenants in a residential income property and uses the RPA [instead of the RIPA which is recommended], the TIP should be used to cover the switchover of each Tenant Lease, Estoppel and Security Deposit.  The TIP serves as an addendum to the existing Rental Documents and Proposed Changes.
  2. TIP states the following:
  1. Buyer shall take Property subject to the rights of existing tenant. Seller shall transfer to Buyer, through escrow, (i) all unused tenant deposits, if any and (ii) all Prepaid but unearned rents, if any. No warranty is made concerning compliance with governmental restrictions, if any, limiting the amount of rent that can lawfully be charged, and/or the maximum number of persons who can lawfully occupy the Property, unless otherwise agreed in writing.
  2. Seller shall, within 7 (or ____ ) Days After Acceptance, deliver to Buyer copies of all: estoppel certificates sent to and received back from tenants; leases; rental agreements; and current income and expense statements (“Rental Documents”).
  3. Seller shall give Buyer written notice of any changes to existing leases or tenancies or new agreements to lease or rent (“Proposed changes”) at least 7 (or ____ ) Days prior to any Proposed Changes.
  4. Buyer’s approval of the Rental Documents and proposed changes is a contingency of this Agreement, Buyer shall, within 5 (or ____ ) Days After receipt of Rental Documents or Proposed Changes remove the applicable contingency or cancel the Agreement.

By signing below Buyer and Seller acknowledge that each has read, understands, has received a copy of and agrees to the terms of the Tenant in Possession Addendum.

Also, remember that Tenants now need to sign the BBD, TFHD & RCJC which they may not have done before.

in Buyers, Compliance, Listings