Buyers who desire to purchase properties with current and/or future rental tenants (e.g., long term resident tenants, shorter term vacation rental tenants) should investigate the property prior to contract and/or during a due diligence period so the buyer has a way out of the deal if the information is not to the buyer’s liking.
Buyers should investigate the rental terms and the rental financials.
Buyers should obtain legal counsel to investigate rental terms/financials and draft the contract/addenda to suit their needs. Ditto Sellers. This is because the standard residential re-sale contract transfers a vacant property free of encumbrances and liens.
Buyers should consider contracting the seller/landlord to provide a Residential Property Condition Disclosure Statement (RPCDS) which asks about a variety of property issues including the lease terms. This is also a risk management document for the real estate licensees and the sellers.
Buyer reps may consider what the buyer desires in the transaction since different buyers may have different desires.
Some buyers may want to move into the property.
Some buyers may be interested in renting the property to tenants.
Some buyers may be interested in renting the property to vacationers.
Some buyers may be interested in using the same property manager.
Some buyers may be interested in hiring their own property manager.
Some buyers may be interested in performing their own property management.
Keep in mind that the security deposit is a huge issue for all (e.g., tenants,sellers, buyers, current property manager, future property manager) because of the landlord tenant act provisions allowing tenant lawsuits of three times damages and the tenants attorney fees.
Having possession/access to the rental documents/photos/videos/check-in sheets/contact/insurance is important. Get the lawyers involved prior to contract or during due diligence.
A change of use (e.g., tenancy, primary residence) can have big tax changes involved. Ditto on insurance. Get the lawyers involved prior to contract or during due diligence.
Much of contract law is based on good faith so landlord/sellers should be very careful about not using good faith in a real estate transaction/contract (e.g., seller booking a $3,000 a week beach house vacation rental to themselves or close relatives for $5 a week for 10 weeks in the summer under the Vacation Rental Act and keeping the buyers unaware of this potential high dollar lawsuit issue).
Adjusting rents, pre-paid rents, past due rents, other fees is important. Get the lawyers involved prior to contract or during due diligence.
Access to the property for showings, inspections, repairs, etc. can be complicated with tenants and vacationers. This can be even more complicated with COVID-19 issues. Get the lawyers involved asap to review the lease terms on these issues. Work out a solution or take legal action available. Same tenants/vacationers might be more cooperative when receiving discounts/cash. Some lease terms allow access. Some lease terms do not allow access. SCR410 allows reasonable access, but some lawyers believe that COVID-19 concerns might lead a judge to side with the tenants about access not being reasonable or requiring PPE, sanitizing, and hygiene.
3. PROPERTY: Hereby acknowledging sufficient good Contract consideration (e.g. mutual promises herein), Seller will sell and convey and Buyer will buy for the Purchase Price any and all lot or parcel of land, appurtenant interests, improvements, landscape, systems, and fixtures if any thereon and further described below ("Property"). Seller agrees to maintain in operable condition the Property and any personal property conveying in same operable condition, including any landscaping, grounds and any agreed upon repairs or replacements, from the Effective Date through Closing subject to normal operable wear and tear. Buyer acknowledges opportunity to inquire about owners association issues, common area issues, condominium master deed issues, assigned parking/storage areas, memberships, lease issues and financed equipment prior to signing Contract. Leasing issues and items and financed equipment see Adjustments (e.g. tenants, leases, future vacation renters, SC vacation rental act reservations, rents, deposits, documents, solar panels, fuel tanks with fuel, alarm systems, satellite equipment, roll carts)
4. CONVEYANCE/CLOSING/POSSESSION: “Closing” occurs when Seller conveys Property to Buyer and occurs no later than 5 PM on or before , (“Closing Date”). Conveyance shall be fee simple made subject to all easements, reservations, rights of way, restrictive covenants of record (provided they do not make the title unmarketable or adversely affect the use/value of the Property in a material way) and to all government statutes, ordinances, rules, permits, and regulations. Seller agrees to convey marketable title with a properly recorded general warranty deed free of encumbrances and liens except as herein stated; and in name(s): and ownership type determined by Buyer. The deed shall be delivered to the Closing Attorney’s designated place on or before the Closing Date no later than 10 AM. Seller agrees to pay all statutory deed recording fees. Parties agree the Brokers shall have access to the closing and relevant documents; and the Brokers shall be given copies of the settlement statement prior to Closing for review. Parties agree to hire/use licensed Attorney(s). Seller shall convey possession of a vacant and reasonably clean Property, free of debris, along with all keys, codes, any remote controls, available documents (e.g. manuals, equipment warranties, service information) and similar ownership items to Buyer at Closing.
22. ADJUSTMENTS: Buyer and Seller agree to settle or prorate, annually or as appropriate; as of Closing Date: (A) utilities and waste fees issued after Closing which include service for time Property was owned/occupied by Seller (B) real estate taxes and owner association fees/assessments for the calendar year of Closing (C) any rents, deposits, fees associated with leasing (D) insurance, EMS service, fuel/consumables, and assessments. Closing Attorney shall make tax proration based on the available tax information deemed reliable by the Closing Attorney. Should the tax or tax estimate or proration later become inaccurate or change, Buyer and Seller shall make any financial adjustments between themselves once accurate tax information is available and Buyer takes timely reasonable steps to minimize taxes. This section survives Closing. Buyer is solely responsible for timely and reasonably minimizing the Buyer’s taxes and obtaining tax minimization procedural information including related legal counsel and financial counsel. Special assessments approved prior to Closing shall be the responsibility of the Seller. Special Assessments approved after Closing shall be the responsibility of the Buyer.
SECTION 27-50-250. Transfer of title of residential property subject to vacation rental agreement.
(A) The grantee of residential property subject to a vacation rental shall take title subject to the vacation rental agreement and the vacation rental management agreement for all vacation rental periods that begin no later than ninety days after the date the grantee’s interest is recorded in the office of the register of deeds. If the vacation rental begins more than ninety days after the recording of the grantee’s interest, then no party has the right to enforce the terms of the vacation rental agreement or occupancy provided for in the agreement, but the tenant is due a refund of any payments towards the agreement within forty-five days of the recording of the transfer of interest.
(B) Before ratification of any contract of sale, the grantor shall disclose to the grantee in writing all future time periods that the property is subject to a vacation rental. Not later than fourteen consecutive days after entering into a contract of sale or transfer of interest, whichever is earlier, the grantor shall disclose in writing to the rental management company the grantee’s name and address. Not later than fourteen consecutive days after the date of the transfer of interest, the grantor shall disclose in writing to the rental management company the grantee’s name, address, and date the transfer of interest was recorded. A grantor or grantee who knowingly violates or fails to perform any duty prescribed by any provision of this article is liable for actual damages proximately caused to the tenant and court costs. The court may award reasonable attorney fees incurred by the prevailing party. No action may be brought against an owner or rental management company by a tenant for any damages or injuries that occur as a result of property defects of which an owner or rental management company had no actual knowledge.
Posted by: Byron King on 07/29/20 (This information is only accurate as of 07/29/20. You must contact SCR for updates and changes to this information after 07/29/20 as laws and regulations may change over time. SCR 803-772-5206 or email Byron)