Property Management Q & A - Spring 2019

A photo of a hand setting up small wooden house blocks

 


 

QUESTION:

Our client has signed a PSA to sell their single family home to a developer (who wants to knock it down and build a new home on the site). The buyer only wants to close after they obtain their building permit, which means that the home will be vacant for 4-6 months. Our client has asked us to find a tenant to occupy the home until the closing. Because the home is to be demolished, the client doesn’t want us to do any of the normal tenant turnover work. We are reluctant to do this because it seems more risky to us. What are your thoughts on this?

ANSWER:

Except in the most unusual cases (see the exceptions in the RLTA set forth in RCW 59.18.360), any tenants will have all the “normal” rights under the law, regardless of the future plans for the home. Thus, as long as the home satisfies all relevant housing standards, you don’t have to do customary cosmetic improvements. So, even if the carpets are stained, the paint old and marked up, the kitchen antiquated, you can just reduce the rent sufficient to attract a tenant. Just be sure you understand that you might have to repair or replace an appliance if it breaks, etc… Again, the tenant is entitled to have all the necessities and amenities maintained.

As a property manager, I recognize that you might not want “your name” on a property that doesn’t meet a certain standard. That is a marketing decision for your company to decide.

Aside from acknowledging your customary maintenance obligations, I have a couple other concerns. First, I urge you to carefully coordinate your obligation to the buyer with the terms of the lease. For example, if the PSA requires that the home be vacant at closing, you will want to make absolutely certain that the home will in fact be vacant. If the PSA has a specific closing date, I would sign a lease for a specific term that ends a reasonable time before the closing date. If the PSA has a floating closing date and you need to close on some specified notice after the buyer receives their permits, then you want to make sure that the lease is month to month so that you can terminate it legally. While state law requires a twenty day minimum termination notice, more and more jurisdictions have longer termination notice periods (see Seattle and Tacoma for example). I have seen far too many sellers find themselves in breach of a sales agreement because they could not deliver the property vacant to the developer/buyer (who typically want nothing to do with managing the property as a landlord or “inheriting” your tenant at closing).

Second, in order to attract a short-term tenant in what might be described as a “less than market standard” home, you might need to lower your rental criteria. Depending on how your company establishes minimum rental criteria and communicates them to potential tenants, it may be impractical for you to deviate from your general requirements.

Lastly, please remember that sales agreements don’t always close. Not knowing the terms of the PSA with the buyer, I am only guessing, but I would imagine that if for some reason, the buyer can’t build what they want, they have some right to terminate the agreement. When you rent a home to a tenant with the understanding that it will be demolished after the tenant vacates, they might not take care of the home in the way you would ordinarily expect. I bet you (and your client) would hate to have the tenant leave the home “in a shambles,” only to have the sales deal flip.

 


 

Christopher T. Benis

Christopher T. Benis is an attorney with Hecker, Wakefield & Feilberg in Seattle. The information contained herein is not legal advice. You are encouraged to consult with your attorney before relying on anything contained herein.

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