Landlords May be Liable

Even After They Sell a Property

 Rick Staff  |    March 06, 2006

REALTORS® not only broker the sale of rental properties, they also own a large number of rental properties, which they sell from time to time. Few rental property sellers, REALTORS® or REALTOR® clients are aware that there is a very dangerous and little-known trap for sellers of these rental properties. As surprising as it may seem, if you sell a rental property and transfer the security deposits to the buyer, you may be sued a year later for double damages and attorney fees because the rental property buyer failed to return the security deposits to your old tenant!

How can this be?

Well, our legislature created §704.09(2)
of the statutes titled:
Effect of Transfer on Liability of Transferor.
This section reads as follows:
In the absence of an express release or a contrary provision in the lease, transfer or consent to transfer does not relieve the transferring party of any contractual obligations under the lease, except in the special situation governed by s.704.25 (5).

What does this mean?

If the seller of a rental property doesn’t have a “time of sale” release provision from the tenant in the lease or doesn’t obtain one separately at the time of closing, the seller is still the landlord as far as liability for failure to meet the landlord’s duties under the lease goes. Assuming that you and your rental property seller clients don’t want liability for the mistakes of the buyer of the rental property, you need to include language in your leases or get releases signed by all tenants at the time of closing.

WRA lease forms include the necessary language:

Upon voluntary or involuntary transfer of ownership of the Premises, Landlord’s obligations under this Agreement are expressly released by the tenant. The new owner of the Premises shall be solely responsible for the Landlord’s obligations under this Agreement.

If you are brokering the sale of a rental property and the seller’s leases do not have the appropriate release language in them, you should refer the seller to legal counsel to have appropriate release documents drafted. Needless to say, the prospect of having to go to each of the tenants and beg for them to sign a release out of the goodness of their hearts is not something to look forward to. However, the seller has to decide if the task of getting individual tenant releases is worse then the threat of liability that will hang over his head as long as any of his tenants are living in the property under the existing leases.

On the bright side, REALTORS® may be able to use information like this and other similar language to develop relationships with local landlords. Who knows — in exchange for a bit of help on this matter, you may get the chance to list one of these rental properties.

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