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Tenant Concerns in Real Estate Transactions!

Feb 18, 2021 | Real Estate

So, you found your perfect house. It has been a long search, and you now have found a home of your dreams. In fact, you were able to put an offer on this house and it was accepted without any fuss. However, you’re now being told that there is a tenant in the property that has not paid rent and will not vacate the property voluntarily.

Naturally, you think to yourself, “there has to be something that can be done … there is no way I’m going to lose this house over a tenant that doesn’t want to pay rent or voluntarily leave.”

The truth is that these situations have become more common, and they tend to be huge problems in real estate transactions. Additionally, these scenarios have increased because of the COVID-19 pandemic. Essentially, Governor Murphy’s Executive Order 106 (EO 106), which places a moratorium on residential tenant eviction, is now placing a huge burden on sellers of real estate, and in return, has become a very frustrating flashpoint for buyers as well.

This order has now kept non-paying tenants secure with the idea that they can stay in the premises until the moratorium is lifted. Certainly, non-paying tenants are still financially responsible, but at least they do not have the lingering fear of a forced eviction. Unfortunately for the sellers of such properties, this places a complication in a real estate transaction that currently has no end in sight. Any seller who wishes to sell a property with a non-paying tenant or a tenant who simply does not want to leave now find themselves in a position that they cannot sell to potential buyers. The “eviction moratorium” presented by EO 106 thus becomes an issue that may bar the sale unless a buyer wishes to take the property with the tenant.

For buyers, the “eviction moratorium” becomes untenable because:

  • Buyers do not want to inherit somebody’s problems while being forced to wait out the moratorium and the resulting case of backlog in the courts
  • Buyers who wish to occupy the property will not buy the property with a tenant and will not simply accept the seller provide that tenant a Notice to Quit.
  • Buyers who wish to occupy want that tenant out before closing. Similarly, a buyer who is purchasing a property as an investment has no appetite for buying a property with a non-paying tenant because they do not want to wait until the moratorium is lifted.

Ultimately, sellers want to sell and buyers want to buy. A tenant that is not paying the rent and not leaving prevents this from happening. As such, as long as the current executive order remains in place, this issue of having the sale of properties disrupted by nonpaying or holdover tenants will continue to grow.

Therefore, it is important that sellers ensure that their tenants will leave voluntarily even if the seller has to provide some type of financial assistance or incentive. Likewise, buyers who wish to occupy the property should immediately demand when they are making an offer that the property be delivered vacant and not waste any time on a property unless there is a commitment that the property will become completely vacant and tenant-free at the time of closing.

Even if a tenant is paying rent and is on a month-to-month basis, but has not committed to leave, a buyer who wishes to occupy can proceed. However, it is recommended to place 30-day contingency that the property must be vacated by the tenant otherwise the buyer can terminate the contract. Certainly, for all buyers and especially investors, if there is a tenant that is not paying rent and has not agreed to leave, such an investment buyer should not proceed with the transaction because it remains an unknown as to the length of time before such a buyer would be able to evict such a tenant.

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