Recipe for Disaster: Landlord Leasing Foibles

Several years ago I brokered a transaction for a seller who was in trouble on a duplex.  The property needed repairs and they were strapped for cash.  On top of that, it was in the midst of the market collapse of 2008.  So, to make the transaction work, we seller financed the property to another buyer.

Unfortunately, the buyer recently returned the property to the seller and gave up on trying to make the place work.  Adding to the woe, the buyer did not make the improvements to the property that they indicated they would make when the transaction was consummated.

The seller-now-owner of the property called me up and asked me to handle the management of the place.  The duplex had existing tenants and lease agreements we were inheriting.

One of the unique features of these units is that they are exceptionally large.  Each unit has 5 bedrooms, 2 kitchens, and three bathrooms.  The place really should be a fourplex.  However, the city only authorizes it to be used as a duplex.

This odd floor plan poses some problems.  First, it is optimal for large families.  However the parking is limited for such a large space.  Secondly, the large space attracts large groups of unrelated individuals as well (i.e. college students, roomates, etc.)  However, zoning laws only allow for up to 3 unrelated individuals to live in the space.  So, these units really find themselves in an awkward and inefficient corner of the market.

To illustrate the point, rent was late from one of the tenants.  Only half the rent was paid from August, the month we transitioned into managing the property.  So, today I went to the property to post the Three Day Notice to Pay or Quit notice.  To my surprise one of the tenants was in the driveway and expressed relief to be getting the notice.  She indicated she wanted a copy of the lease as well so she could go to a local charity and ask for help.  I returned with a copy of the lease a couple hours later for her.

One of the unique characteristics of the lease was that it was really two leases for two separate individuals to inhabit the same space.  I thought this was odd for the previous property manager to write it this way.  The situation was that a mother and daughter were each going to live in half the space with their children and/or friends.  Each was signed up to pay half the monthly rent of $1100. In an awkward effort to bind the leases together, the previous landlord used this document.

So, when I went over today to give the paperwork to the mother, she told me she couldn't cover the rent and that they would have to move. Apparently, her daughter who was the other lease tenant, moved out a while ago.  I agreed to let them leave due to the impossibility of rent being paid and the fact that the previous landlords left us with a very messy and ambiguous lease situation to unwind.

In a worst case scenario, if one of the tenants didn't pay, even with this awkward document written by the previous landlord, the other could possibly continue to live there as long as they paid their share of the rent.  But, since they are in a roommate type situation without separate living spaces, the likelihood of finding a replacement tenant to pick up the other half of the rent becomes very unlikely.  Thus, once one tenant vacates, it becomes an unsolvable situation.  The existing tenant has a strong incentive to continue to pay their half of the market rents while also obstructing the leasing of the space to another roommate.

The bottom line is that splitting up one space with two separate leases is bad policy.  Rather, I recommend putting all the roommates on one lease agreement.  They are all held equally responsible for the lease, even if they leave, and that makes evictions and accountability very easy to manage.  

If you are considering renting your property out and have thought of hiring a manager, CONTACT ME, and I can show you how we make owning income property a worry free experience.