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How to Notify Residents of a Change in Rental Property Ownership

If you’re like most rental property owners and you’re acquiring property that’s already occupied, the residents are probably well aware of the pending ownership change, but they may be apprehensive when their rental unit changes ownership because of the uncertainty of change. So begin your relationship with your residents on a positive note.

Meeting with the residents in person

When you first acquire your new property, contact your residents in person and reassure them that you intend to treat them with respect and have a cordial yet businesslike relationship. Respond to your residents’ questions and concerns honestly and directly. Often, the first question they ask is whether they’ll be allowed to stay.

Other common concerns are the potential for a rent increase, the status of their security deposit, the proper maintenance or condition of their rental unit, and the continuation of certain policies, such as allowing pets. Anticipate these concerns and prepare your responses. You’ll lose credibility and damage your relationship with your residents if you later decide to implement changes that you didn’t acknowledge up-front.

Give your residents a letter of introduction during this brief in-person meeting. This letter should provide your contact information and explain your rent collection policies, the status of residents’ security deposits, and the proper procedures for requesting maintenance and repairs.

Inspecting the rental unit

Although you likely had a brief chance to view the unit’s interior during the due diligence period before escrow closed, walking through again with the resident can be helpful. However, know your state laws. In most states, residents don’t have to let you enter their units unless you have a legal reason and have given proper advance notice.

If you set a voluntary appointment, the resident knows you’re coming and can prepare.

Don’t just knock on the door and expect to walk through your resident’s rental unit. But if you’re already at the property delivering your letter of introduction, you can schedule a convenient time to meet.

The former owner of the property may have had a policy of documenting the unit’s condition at the time the resident took possession. If so, you may want to compare those notes to the notes you make when you walk through the unit. If proper documentation of the unit’s move-in condition wasn’t made, consider preparing such information during your walk-through.

Using a new rental contract

When you take over an occupied rental property, you’ll want to transfer the residents to your own rental contract eventually. The sooner you begin to convert your new property to your rental contracts, the better. If your policies are markedly stricter, you may find the transition period difficult. Establish uniform policies for all your residents to avoid any possible fair housing violations.

Your residents already have one of the following:

  • A valid written lease

  • An expired written lease that has become a month-to-month rental agreement

  • A written month-to-month rental agreement

  • A written rental agreement for a period of less than a month

  • A verbal agreement

Although you may want to make some changes in the terms or policies of your residents’ current leases or rental agreements, when you acquire an occupied rental property, your legal and business relationship is already established by whatever agreement the residents had with the former owner.

Consider the potential impact of making significant changes in rental rates or policies immediately after you acquire the property. Although you legally have the right to implement your no-pet policy upon lease renewal or upon giving proper legal notice, you’re almost guaranteed a vacant rental unit if you do so.

The resident information the seller provided you during escrow may be outdated. One quick way to update your records is to have the residents voluntarily complete your rental application form. In many states, you may not have a strong legal argument for requiring existing residents to provide this information; however, many residents will understand your reasoning and not mind.

Other residents may be reluctant to complete an entirely new rental application. Even if you receive initial resistance, seek this updated information prior to renewing any lease.

Evaluating the current rent

When you acquire a rental property, a significant part of your research should be to establish its fair market rental value. This accurate calculation should play a role in your decision to buy. If a resident’s current rent is below market value, one of your toughest decisions is how to handle rent increases.

As the new owner, you often have higher mortgage payments and expenses to make necessary repairs and upgrades to the property. Some residents get very upset and antagonistic about any rent increase, however, and you won’t be able to appease them. Other residents often welcome the improvements and will accept the necessary increase.

Fortunately, the majority of residents just expect to be treated fairly and honestly. They understand you may have higher expenses and will reluctantly accept a rent increase as long as two basic conditions are met:

  • You don’t raise the rent beyond the current market rent for a comparable rental unit in the area. Give residents documented information on comparable rentals in your area to show them you’re not asking for an unreasonable rent.

  • You’re willing to make basic repairs to the rental unit. Don’t ask residents to shell out extra cash without proving you’re committed to maintaining and even improving the property. But residents don’t appreciate all improvements equally. A new roof may not mean much if their unit didn’t leak, but a new boiler or water heater could mean more consistent hot water, which all residents will notice and appreciate.

Most residents just want to be sure they’re receiving some benefit of paying higher rent. So if you ask for more rent, be willing to reinvest a portion of the rent increase into the property with cost-effective improvements that conserve energy and/or increase resident satisfaction.

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