Key Points:
- When purchasing an occupied investment rental property, you must honor the current lease agreement
- All real estate sales are “subject to” lease agreements
- You may only increase rent once in any 12 month period in Colorado for residential property
We often talk to Denver real estate investors who have recently purchased occupied rental property. It is not uncommon for these new investors to want to immediately increase the rent charged, in an effort to align the rental rate with current market rents. Is this allowed? If you purchase an occupied investment property, are you allowed to immediately increase the rent?
There are two rules all real estate investors must follow when considering increasing the rent on newly purchased and occupied rental property:
Rule #1: All sales are subject to the lease agreements that are already in place at the property. The lease agreement supersedes the sales agreement. When you purchase an occupied property, you are buying the lease agreement.
- This means you must honor all terms of the current lease agreement (including the duration of the term and the rental rate)
- You may not increase the rent while that lease is in effect
- You may not terminate the lease agreement
The new buyer is locked into honoring each and every term of the existing lease agreement and may not make any unilateral changes to this agreement.
Rule #2: A landlord may only increase rent one time in any 12 month period in Colorado. This only applies to residential property, and does NOT apply to commercial property. This means that if the prior owner of the property increased the rent on the property during the prior 12 months, the new owner must wait 12 months from that last rental increase date before making any further rent increases. This applies to month-to-month leases as well as term leases. For more information on increasing rent, see this post.
Because of these two rules, we highly recommend that when purchasing an occupied investment property, you familiarize yourself with the current lease agreement in place on that property.
If you are thinking of selling your occupied rental property, there are also some very important factors to consider. For more information on selling a property that has current tenants, check out this post.
We at Grace Property Management are always ready and willing to help in any way we can. If you have questions about buying or selling investment property, lease agreements, or rent increases, consider Grace Property Management a resource. Contact us at www.rentgrace.com or 303-255-1990.
