Buying a home occupied with tenants

Buying a home occupied with tenants

Heather Chilvers, Sales Representative at Coldwell Banker Bermuda Realty explores the issues around purchasing a property where tenants currently reside (both in the whole home or apartment/cottage) and examines what purchasers and tenants rights and obligations are and what you should consider before the purchase closes.

Sometimes houses for sale are occupied by tenants who will remain in residence after the sale has completed. It is important to understand tenant rights, landlord obligations and the associated risks when you purchase a home that is still occupied by tenants.

In Bermuda, the terms of a tenant’s lease runs with the house and not the owner, so the sale of a home does not change the original lease agreement. As a buyer you will inherit all of the landlord obligations and terms of the lease. So if there is 6 months to go run on the lease you are required to honor it.

If the unit is under rent control (i.e. an ARV of $22,800 or less) then all tenancies have to abide by the Rent Increases (Domestic Premises) Control Act 1978. Therefore all rent increases, lease terminations, or intentions to owner-occupy your new home must be done in accordance with the act.

If a tenant is on a fixed-term lease (i.e. 1 year/2 years etc.) you only have two options. You either let the tenants finish out the lease term, or you may be able to negotiate with them for an early termination, which often means sweetening the move with attractive financial consideration. They are under no obligation to agree to an early termination.

If you are terminating a month to month, notice must be given in writing and must include 1 full calendar month’s notice.

If you are inheriting lease obligations with your home purchase, do spend the time to review the lease documents prior to closing. Make sure that the existing lease is well-written and structured with local rental laws in mind, including the placement of government required stamps on the lease agreement and any copies. 

Make sure that there is documentation of any prepaid rent or security deposits, including a check-in report describing the condition of the home when the tenants moved-in. If the tenants cause damage that you intend to take out of their security deposit, you won’t be successful unless you can properly document the property’s original condition. We strongly recommend that you have a walk through with the tenants prior to closing where you can verify the current condition and speak with them directly about their lease terms and condition of the property.

Inheriting tenants means that you are inheriting their security deposit and any prepaid rent. Verify with your lawyer that these funds are being transferred to you on your closing statement. Your attorney will also pro-rate the current month’s rent payment between you and the seller.

Renting out a home involves risk that must be properly insured. You want to make sure that your insurance provider is aware that the home is currently rented to make sure that you are covered for tenant injuries, negligence and other catastrophes.

Heather Chilvers is amongst Coldwell Banker Bermuda Realty’s Leading Sales Representatives. She has been working in Real Estate for 28 years. If you have a question for Heather, please contact her at hchilvers@brcl.bm or 332 1793. All questions will be treated confidentially.

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