Can a Landlord Increase Rent for a Lease Transfer?

Buying a rental house or apartment building can result in the need to raise the rents to market rates. If you purchased the property with the knowledge that the rent is low, you may be eager to increase the rates in order to realize more profit or just to break even. However, you must understand the law about lease agreements and when you can and cannot increase rents on a lease transfer.

Lease Transfer

Before you purchase rental property, ask for the rent roll and copies of all the leases, especially if it's multi-family real estate. This information will tell you the rent rates and the terms of the leases. If you feel you are buying a bargain because the rents are lower than market rates, you may decide to calculate your monthly cash flow using the increased rental amounts, instead of the current rents. Once you become the owner of the property, the lease assignments are transferred to you. Since they are contractual agreements, most states require you to honor all clauses of the leases.

Long-Term

A long-term lease is an agreement with a tenant that lasts six to 12 months or more, on average. Once a long-term lease is signed by the prior landlord and the tenant, you must abide by its terms, even after you become the owner. Therefore, in most states, it is illegal to raise the rent in the middle of the agreement term. Although unlikely, the prior landlord may have included a clause in the lease that allows a new owner to evict a tenant or change the terms of the contract upon transfer. In this case, you have a right to increase the rent.

Month-to-Month

Tenants who do not have specific end dates in their agreements are usually month-to-month renters. A landlord can change the terms of a month-to-month contract with a 30-day notice in most states. Therefore, it is legal to raise the rents on these tenants. However, it's prudent to understand the impact of buying a property and immediately increasing rental rates. Tenants may move out, and you could be faced with a high vacancy rate and a drastic drop in income for a long period.

Security Deposits

Security deposits should be held in a separate account and transferred with the property upon a sale. Make sure the amount paid is specified on each tenant's rental agreement. A new landlord is obligated to repay the security deposit after the renter moves, if it is justified by the condition of the unit. If there was a mix-up when the real estate changed owners and security deposits were lost, it should not impact the tenants' right to receive a refund upon moving out.

References

• Nolo: If My Building Sold, What Happens to Me?
• Illinois Legal Aid; What Happens to My Lease if My Landlord Sells the Property; John Roska; 2010
• GIS; How to Be a Landlord in Massachusetts and Avoid Legal Trouble; A. Joseph Ross; 2009
• Consumer Affairs and Business Regulations: Tenant Rights and Responsibilities
• Landlord.com; Investment Property Buying Pitfalls for the Soon-To-Be Initiated; Bob Cain; 2000
• California Department of Consumer Affairs; California Tenants; 2010