I routinely help landlords and tenants process their purchase-sale transaction with no realtors and no commissions. The process is very straightforward.
Here are some of the typical FAQs for the landlord & tenant home sale:
Question: Do we need to amend or cancel the lease?
Answer: No, the purchase contract is separate from the lease and need not be altered in any way. The lease will terminate automatically at close of escrow (the legal reason for this is the doctrine of ‘merger’). And of course, if the Buyer decides to cancel the purchase contract for any reason before close of escrow, the lease continues to remain in full force and effect.
Question: What should we do about the security deposit?
Answer: In about 90% of landlord-tenant transactions, the Seller/Landlord will authorize escrow to credit the Buyer/Tenant in escrow for a full security deposit refund at close of escrow. Obviously, this has the practical effect of reducing the Buyer’s purchase price (or closing costs) by the amount of the security deposit. In a minority of transactions, the security deposit is handled outside of escrow — for example, if the Seller is doing a 1031-exchange, then it’s a good idea for accounting reasons to process the refund outside escrow, and then the landlord (in California for example) will simply refund the security deposit no later than 21-days after close of escrow.
Question: Can the Tenant help the Landlord complete the disclosure forms?
Answer: Yes, that is very common for the Tenant to provide some input on the disclosure forms. The reason for this is obvious – the tenant is currently living in the property and therefore has current knowledge of the property’s current condition. Disclosures are often a cooperative process, so that’s nice.
Question: Does the tenant need to do a contractor’s home inspection or pest inspection?
Answer: No, those inspections are not required by law. But from a practical perspective, the lender for the Buyer/Tenant may want to see an inspection report, and especially so if the appraiser highlights serious issues (i.e., roof missing shingles) during the appraisal.
Greg Glaser, Attorney at Law
San Francisco Bay Area – Northern California
(925) 642-6651 — firstname.lastname@example.org
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