With tourism in Sarasota rapidly growing every year, people are continuing to buy and sell investment properties here (because who wouldn’t want to escape to sunny Sarasota?) These investment properties frequently become short-term vacation rentals, annual rentals, etc. An often overlooked, but equally important, section of the “As Is” and Standard Florida Realtors/Florida Bar Contract is Section 6(b), which pertains to occupancy and possession, specifically discussing leases. The contract asks you to indicate whether the property is subject to a lease(s) or occupancy after closing. Checking the box has two further implications:
First, if the property is subject to a lease after closing, or is intended to be rented or occupied by third parties beyond closing, a copy of the written lease must be provided to the buyer within five (5) days after the effective date of the contract. Additionally, a copy of the lease agreement should be provided to the closing agent as soon as possible. Upon receipt of the lease, the buyer has up to a five (5) days to review the lease(s) and if the terms of occupancy are not acceptable to the buyer, the buyer may terminate the real estate contract by delivery of written notice to the Seller and both parties are released from all further obligations. Listing agent tip: always provide a copy of the lease to the buyer as soon as possible in order to quickly close the buyer’s five (5) day review period. You don’t want to be in a situation where the inspection period has ended, but the buyer just received and reviewed the lease and decides to terminate the contract. Remember, despite when the lease is provided, the buyer always has that five (5) day review period and right to terminate.
Another consequence of checking the box in Section 6(b) is the necessity for a tenant estoppel. Tenant estoppels are primarily associated with commercial real estate; however, they are equally as important to a residential real estate transaction involving an investment/rental property. For example, if a buyer is under contract to purchase a property currently occupied by a tenant (and the tenant will be in place on the day of closing), it is of utmost importance that the closing agent obtain a tenant estoppel certificate and a copy of the lease to review. Solely reviewing the lease does not always paint a complete picture. A completed tenant estoppel certificate will provide pertinent information including, but not limited to: the amount of monthly rent, expiration date of the lease, whether a security deposit has been made, whether any pre-paid rent was collected (i.e., first and last month’s rent), whether any renewal option or options to purchase exist, whether the current tenant is late on their payments, etc. Moreover, the tenant estoppel certificate will ensure a tenant is legitimate and compliant, which the buyer (successor landlord) will want to know. From a closing agent’s perspective, a tenant estoppel certificate is a crucial piece to the closing puzzle because it instructs us on how to prorate the rent and make sure the security deposit and pre-paid rents are with the rightful owner of the property.
As always, if you have any questions with regard to residential leases or tenant estoppel certificates, we strongly encourage you to reach out to one of the attorneys at Berlin Patten Ebling, or speak with your local real estate attorney for guidance.
Berlin Patten Ebling, PLLC
Article Authored by Mallory Moretti, Esq. firstname.lastname@example.org
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