It is not uncommon to change owners or managers for a rental property. There is a standard process to follow, which involves administrative and communication steps. As the new owner or manager, past problems (“he said, she said”) and tenants’ emotions will become your responsibility. It is important to remain professional and responsible during the entire transition process.
Notification to Prior Management
When you are transitioning management, the first step is to check your property management agreement and review the terms in the contract. Are you allowed to cancel today and is there any termination fee? The prior management may take the news personally, knowing that you have selected to no longer work with them. It is highly advised to amicably notify the prior management and professionally articulate why a new solution is better for you.
The official notificaton should be in writing and confirm a transition date that does not conflict with the original terms of the contract. When you are changing ownership of the rental, it is already assumed that management is subject to change and your real estate agent can help with teh formal notices.
Checklist to Change Management
The first step in the transition is to receive as much as you can about the history of the property and tenants. The prior management may not be as organized as you, and therefore it is your responsibility to request and confirm receipt of the most important documents. Here are the major items you should expect to receive:
Some past managers will provide high level spreadsheets with this information, to make your life easier as well. If you do not receive any of these items listed above, then have a plan on how to update your records on the item. For example, if there is not a move-in inspection for one of the rental units, then you should plan to perform a mid tenancy inspection. Refer to this article on the Rental Inspection Guides, as well as Privacy Concerns and Rights for rental properties.
Notification to Tenants
When residents hear that their management is changing, it is common for them to have a sense of fear or concern. Their first concern is about the future of their home, as they worry about increased rental rates, changes to the lease, or a request for move out. It is important to communicate to the tenant that although management is changing, their current lease will remain in tact.
Some words of wisdom: You don't want to be too aggressive initially, increasing rents or changing terms until you have a strategic and fair plan for long-term success. For example, raising all of the rents for month-to-month tenancies during the transition could increase vacancy rates and hurt short term cash flow.
The most common way to officially notify the current residents is a lease amendment that mentions all terms of the original lease are in tact but the management and/or ownership is changing (and providing the updated contact information). The notification should be delivered in person or posted on the door and also sent via certified mail.
2 Frequent Mistakes
One of the most common mistakes is not transferring over the security deposits. Or even worse, the prior management has not collected the security deposits, leaving you at risk when the tenant transitions out of the rental property. As part of the checklist, confirm that you received the security deposit from the prior manager.
If the prior management did not collect on security deposits, then you should plan to require a security deposit during the lease renewal. Without this deposit, there is a high probability that you are chasing tenants in the courtroom to pay for turnover damages. It is better to be proactive than in that position.
The second most common mistake is thinking the tenants need to sign an addendum or amendment to the original lease. Owners are not required to receive tenants' approval for selling a property or changing management. A new property manager is considered an agent of the owner. And therefore, the tenant does not need to agree to a change in ownership or management. Nonetheless, is it important to have a welcome letter explaining the transition.
Photo Cred: Matt Artz