Q: We’ve been renting a single-family home that we would like to purchase if the owner decides to sell. Our lease is up for renewal. Can we use a lease clause to put us in the best position to purchase if the property goes on the market? –Brad H.
A: Like you, lots of renters become very comfortable with their rental and dream of making it their own some day. It’s often advantageous for both landlord and tenant to become seller and buyer.
Though many of the usual home-selling conventions are honored — for example, the seller may use a broker simply to help with the details, and a thorough inspection should be required by even the most familiar of tenants — other steps, such as staging the home and open houses, are thankfully skipped.
There’s a psychological component as well. Many owners (particularly those who are not simply investors) want to sell their house to someone who will love and appreciate it as they did. When they’ve had a good relationship with the renters, and know that the renters have a special feeling about the home, the owners feel good about the sale.
The lease clause you need is either a "right of first refusal" or a "right of first offer." Understand that we’re not talking here about an option to buy, which is a right that renters pay for when signing the lease so that they can purchase the property at a specified time for a specified price.
By contrast, the two rights described here kick in only if the owner-landlord decides to sell. For that reason, the rights are less valuable, which means that the renter should expect to pay less for them than an option to buy.
So, what’s the difference between these two rights? There’s a big difference. The right of first refusal means that when the owner puts the property on the market and has arrived at an all-but-inked deal with a potential buyer, the owner must come to the tenant and give him the chance to buy the property on better terms, such as for a higher price or with a bigger downpayment.
By contrast, a right of first offer means that once the landlord has decided to sell and has named a price, he must first offer it to the tenant. If the tenant can match the landlord’s price, that’s it. If not, the owner is free to market the property; if the tenant wants to bid later, he becomes just like any other interested would-be buyer.
Not surprisingly, landlords rarely agree to a right of first refusal. For one thing, they or their brokers would have to disclose to interested bidders that the tenant, with his refusal right, is waiting in the wings, ready to swoop out and steal the deal that the bidder has painstakingly hammered out with the seller.
Upon learning that the renter may be the one to reap the advantages of all their hard bargaining, many buyers will pull out and look elsewhere. The seller may end up with a property that no one wants to negotiate over.
With a right of first offer, there’s no similar tie-up. There are some drawbacks here for the seller as well, however, including that he will not be the happy beneficiary of a bidding war. If the tenant accepts the seller’s original price, that’s the end of it.
The seller can’t insist on more or see whether the market would bear a higher price. Nor can the seller in bad faith put an unrealistically high price on the property just to get rid of the tenant and his right of first offer.
Because a lot is riding on this one lease clause, you’d be well advised to consult an attorney in your state who specializes in real estate transactions. If you were to lose your right to obtain the home due to a poorly drafted clause, that would be a great shame.
And be prepared to pay for your right, whichever one you end up with. If it’s not clear in your lease that you have paid for the right, a judge might refuse to enforce it on the grounds that it was simply a gift.
Q: I’m a landlord in a small college town. Over the past couple of years, several students have committed suicide, making this college and town the focus of mental health professionals who are trying to figure out what’s going on. A task force has convened to discuss the situation and come up with ways to avoid future tragedies.
As an owner of several rental properties, I was asked to participate. But I’m a landlord, not a counselor or teacher. What role do you suppose landlords should play? –Tom S.
A: Teachers and counselors at your school (and the student body at large) will probably receive information on how to spot students who appear to be severely overwhelmed or depressed; and they will learn of the resources available to help these young people.
Teachers, counselors and other students are in a good position to observe and evaluate students’ behavior because they interact with students on a regular and sometimes (as in roommates) intimate basis.
Landlords, on the other hand, are rarely on the scene as frequently. Unless the landlord lives on the property and has daily interactions with his tenants, he’s not likely to be able to assess behavior and, more importantly, changes in behavior.
Moreover, most tenants have no intention of becoming pals with their landlords or managers; and tenant privacy laws of many states make it doubly difficult for landlords to become knowledgeable about their renters’ lives. If you don’t live on the property; you visit it only for inspections, repairs, maintenance, and showings; and you receive your rent by mail or direct deposit, you’re likely to go for months without seeing your tenants.
You may also find it very difficult to draw conclusions from the behavior you do observe in your infrequent interactions. A student who rarely leaves his apartment might be a depressed recluse; on the other hand, one who obsessively goes to classes and the library could be just as stressed and desperate — either or both could be candidates for intervention. How will you know?
For some practical advice, you might consider borrowing an approach used by employers, who figured out long ago that personal problems often lead to trouble at work, from inefficiency to poor performance and increased absences. Many employers want to help workers who are undergoing difficult times, but they too must respect employees’ privacy.
One way is to simply make the offer of information and help available by posting information on how to recognize worrisome issues or behavior and where to get help. Not unlike the ubiquitous "OSHA" posters, these bulletin boards at least get the word out, and serve the added function of educating fellow workers on behaviors that might constitute signs of trouble.
You, too, can help your student renters by posting information in your lobby and other common areas on what to look for — and how to get help. The college is in a good position to prepare these types of materials. After reading them, an enlightened roommate or neighbor might put two and two together and decide to have a talk with their friend about how he’s feeling and what he’s thinking of doing.
That person might also decide to speak with a counselor or teacher, who has the authority to intervene. You will have done a great service without invading tenant privacy or having to render difficult judgments you don’t feel qualified to make.
Janet Portman is an attorney and managing editor at Nolo. She specializes in landlord/tenant law and is co-author of "Every Landlord’s Legal Guide" and "Every Tenant’s Legal Guide." She can be reached at janet@inman.com.
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