Current agreements are an extremely important piece of information to review and discuss prior to executing a contract. This agent learns a hard lesson about current agreements firsthand in this scenario.
Situation
An absentee owner of residential property entered into a listing agreement with a real estate agent knowing his employer was planning to transfer him to another state. With excellent tenants living in the home, both the agent and owner believed that it would be attractive to potential investors. The tenants were then given notice that buyers could be entering the home and that ownership could change hands.
Soon afterward, a couple viewed the property on three occasions, fell in love with it, and quickly executed a purchase and sale agreement with the seller. However, instead of acquiring it for investment purposes, they decided to sell their existing home and move in.
Problem
The owner and tenants had recently renewed the lease for a 12-month period.
Mistake
The agent neglected to ask the owner for a copy of the lease agreement prior to having the parties execute the sales contract.
Result
After learning that the buyers were interested in taking occupancy, the agent realized he didn't have a copy of the lease and couldn't produce it for the buyers. When he received it from the seller, he discovered that there were ten months remaining on the lease, but the tenants refused to yield the property until the lease expired.
Surprisingly, the buyers decided to voluntarily terminate the purchase and sale agreement, and the agent was able to find another buyer. Not surprisingly, however, the seller demanded that the agent pay the price differential since the second contract was $25,000 less than the first.
Prevention
When properties are occupied by a tenant, an agent should obtain a copy of the lease agreement and provide it to the buyer at the time a sales contract is being contemplated. An agent should also recommend that the parties obtain legal counsel to prepare a lease assignment to ensure that it is properly assigned to the contract buyer upon close of escrow.
Furthermore, an estoppel letter or certificate from the owner and tenant confirming that the lease is in good standing is an additional step that will certainly protect parties in the transaction.
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The purpose of this article is to inform and insulate real estate professionals from potential monetary claims and professional grievances. The fact patterns are from actual claims against real estate agents. While the author is an experienced claims representative, the opinions expressed herein are general in nature, not fact nor state specific; and therefore, should not be taken as a substitute for legal advice from an attorney licensed in your state. This article was produced in conjunction with AXA XL and is not to be taken as legal advice.